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Will Upstream Segment Boost Chevron's (CVX) Q1 Earnings?

Zacks Equity Research

Chevron Corporation CVX is expected to release first-quarter 2019 results before the opening bell on Apr 26. The current Zacks Consensus Estimate for the quarter to be reported is a profit of $1.30 per share on revenues of $37.9 billion.

In the preceding three-month period, the integrated oil and gas company beat the consensus mark by 10.16%, backed by record production and rising oil prices. As far as earnings surprises are concerned, the San Ramon, CA-based U.S. oil major surpassed the Zacks Consensus Estimate thrice in the last four reports, with average positive earnings surprise of 7.51%.

Chevron Corporation Price and EPS Surprise

Chevron Corporation Price and EPS Surprise | Chevron Corporation Quote

Investors are keeping their fingers crossed and anticipating that Chevron will surpass earnings estimates this time around. Let’s see which way are the company’s top and bottom-line estimates headed.

The Zacks Consensus Estimate for revenues is pegged at $37.9 billion, indicating a rise from $37.7 billion recorded in the prior-year quarter. The Zacks Consensus Estimate for first-quarter earnings of $1.30 per share compares unfavorably with $1.90 recorded in the corresponding quarter of the prior year. Earnings estimates for the to-be-reported quarter have been revised downward by 21 cents in the past seven days.

Let’s delve deeper into the factors that are likely to influence Chevron’s first-quarter earnings.

Factors at Play     

Following the oil crash toward the end of 2018, WTI crude popped up to $60.55 a barrel in the March quarter of 2019, witnessing the fastest rate of oil price increase since a decade. Crude prices rebounded 30% in the first quarter, underpinned mainly by OPEC+ supply cuts and U.S. sanctions against Venezuela and Iran, which bodes well for the upstream segment of Chevron.

The company’s upcoming results are set to benefit from increasing output. The Zacks Consensus Estimate for first-quarter production volumes is pegged at 3,070 thousand oil-equivalent barrels per day (MBOE/d), suggesting an improvement from 2,852 MBOE/d in the year-ago period. Chevron is likely to record higher year-over-year output from top-tier assets in Permian and Gulf of Mexico, as well as Wheatstone LNG plant in Australia. Rising output and surge in oil prices are likely to contribute to upstream earnings growth.

However, we expect weak margins to affect the company’s bottom line at the downstream segment in first-quarter 2019. Notably, the Zacks Consensus Estimate for the segment’s quarterly income is $700 million, down from $728 million and $859 million recorded in first-quarter 2018 and fourth-quarter 2018, respectively.

Earnings Whispers

Our proven model does not show that Chevron will beat estimates in the to-be-reported quarter. 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) to be able to beat the consensus estimate. That is not the case here as you will see below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -6.87%. This is because the Most Accurate Estimate of earnings of $1.21 a share is pegged 9 cents below the Zacks Consensus Estimate.

Zacks Rank: Chevron currently has a Zacks Rank of 3, which increases the predictive power of ESP. But we also need to have a positive Earnings ESP to be confident of a positive surprise.

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

Stocks to Consider

Though an earnings beat looks uncertain for Chevron, here are a few energy 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 upcoming quarterly release:

Cabot Oil & Gas Corporation COG has an Earnings ESP of +4.43% and a Zacks Rank #1. The firm is expected to release quarterly earnings on Apr 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

ConocoPhillips COP has an Earnings ESP of +1.55% and a Zacks Rank #2. The company is anticipated to release first-quarter earnings on Apr 30.

Encana Corporation ECA has an Earnings ESP of +44.83% and a Zacks Rank #3. The company is anticipated to release quarterly earnings on Apr 30.

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