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Suncor (SU) Warming Up to Q4 Earnings: What's in the Offing?

Zacks Equity Research

Suncor Energy Inc. SU is scheduled to release fourth-quarter 2018 results on Feb 5, after market close.

In the last reported quarter, the Canadian energy giant reported better-than-expected results on pricing and production gains, along with higher refining margins.

Moreover, the company displays an impressive earnings surprise history. Suncor surpassed earnings estimates in each of the last four quarters, with average positive surprise of 5.56%.

Suncor Energy Inc. Price and EPS Surprise

Suncor Energy Inc. Price and EPS Surprise | Suncor Energy Inc. Quote

Which Way are Estimates Treading?

Let’s take a look at estimate revisions in order to get a clear picture of what analysts are thinking about the company before the earnings release.

The Zacks Consensus Estimate of 44 cents for the to-be-reported quarter’s earnings has been revised downward by 14 cents over the past 30 days. Further, it reflects about 29% decline from the year-ago quarter.

On a positive note, the Zacks Consensus Estimate for revenues is pegged at $8,130 million for the fourth quarter compared with $7,119 million recorded in the prior-year period.

Factors at Play

Early this month, Suncor provided fourth-quarter operations update, wherein it stated that the total output recorded during the period totaled 831,000 barrels of oil equivalent per day. This marks a record quarterly production, depicting a year-over-year increase of 12.8%. The company is anticipated to gain owing to robust production from Fort Hills and the Syncrude project. However, higher volumes are likely to be offset by weaker oil prices. Markedly, during fourth-quarter 2018, the WTI crude plunged from a multi-year high of $76.40 a barrel in early October to below $45 in late December amid supply glut, U.S.-Sino trade tensions, weakening demand outlook, pipeline pinch and concerns related to economic slowdown.

Notably, refinery utilization came in at 101% vis a vis 94% in the prior-year quarter. Further, the quarterly crude throughput of 468,000 reflects an uptick from the year-ago period. Nonetheless, the company may feel the pinch of weak refinery margins, which might dent overall downstream results.

Earnings Whispers

Our proven model shows that Suncor is unlikely to beat estimates this earnings season. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.   

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -21.21%. This is because the Most Accurate Estimate of 35 cents is pegged below the Zacks Consensus Estimate of 44 cents You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Suncor currently carries a Zacks Rank #3 (Hold). While the company’s favorable Zacks Rank increases the predictive power of ESP, a negative Earnings ESP makes surprise prediction difficult.

Note that we caution investors against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Though an earnings beat looks uncertain for Chevron, here are a few firms from the energy space that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat in the quarter to be reported.

Philips 66 PSX has an Earnings ESP of +7.66% and holds a Zacks Rank #3. The firm is expected to report fourth-quarter earnings on Feb 8. You can see the complete list of today’s Zacks #1 Rank stocks here.

Williams Companies WMB has an Earnings ESP of +10.08% and a Zacks Rank #3. The firm is slated to release fourth-quarter earnings on Feb 13.

CSI Compressco LP CCLP has an Earnings ESP of +4.17% and a Zacks Rank #3. The company is expected to release fourth-quarter earnings on Feb 27.

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