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What's in the Cards for EOG Resources' (EOG) Q2 Earnings?

Zacks Equity Research

EOG Resources, Inc. EOG is set to release second-quarter 2019 results on Aug 1.

It reported first-quarter 2019 adjusted earnings per share (EPS) of $1.19, which beat the Zacks Consensus Estimate of $1.03 on the back of higher oil equivalent production volumes. Notably, the upstream energy player beat the Zacks Consensus Estimate for earnings in three of the last four quarters, recording an average positive surprise of 7.5%.

EOG Resources, Inc. Price and EPS Surprise

EOG Resources, Inc. Price and EPS Surprise

EOG Resources, Inc. price-eps-surprise | EOG Resources, Inc. Quote

Let’s see how things are shaping up for this announcement.

Which Way are Estimates Trending?

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

The Zacks Consensus Estimate for revenues is pegged at $4.4 billion for the to-be-reported quarter, indicating an increase of 4.8% from the year-ago reported figure.

The consensus estimate for earnings of $1.36 per share for the second quarter has seen one upward movement but 11 downward revisions in the past 30 days. This estimated figure suggests a year-over-year decline of about 0.7%.

Factors Likely to Influence Upcoming Quarterly Results

EOG Resources — which is a leading upstream energy player with an attractive growth profile — has significant acreage in Eagle Ford, Permian, Bakken and Powder River Basin. This enables the company to maintain an oil-heavy portfolio. Its presence in these areas boosts output from domestic resources and the to-be-reported quarter’s results are expected to reflect the same. For the second quarter, the Zacks Consensus Estimate for the company’s oil equivalent production volumes is pegged at 805 thousand barrels per day (Mboe/d). The expected figure is much higher than the year-ago period’s 702 Mboe/d.

Crude production for second-quarter 2019 is projected at 451 thousand barrels per day (MBD), higher than the year-ago reported figure of 385 MBD. This can have a significantly positive effect on second-quarter earnings. However, the West Texas Intermediate (WTI) crude price in second-quarter 2019 was lower than the year-ago period. In April, May and June, WTI averaged $63.86, $60.83 and $54.66 per barrel, respectively, per the U.S. Energy Information Administration. In comparison, WTI averaged $66.25, $69.98 and $67.87 per barrel in the year-ago respective months of 2018. The year-over-year decline in crude price may hurt the company’s businessesand offset the positives derived from the year-over-year increase in volumes.

The Zacks Consensus Estimate for natural gas liquids price is pegged at $21.55 per barrel, which is lower than the year-ago level of $27.86. Additionally, the Zacks Consensus Estimate for natural gas prices stands at $2.47 per thousand cubic feet, lower than the year-ago period’s $2.69.

To conclude, higher production volumes are expected to boost EOG Resources’ second-quarter 2019 results, offset by lower price realization that is likely to result in a marginal year-over-year decline in EPS.

What Our Model Unveils

Our proven model does not conclusively show that EOG Resources is likely to beat the Zacks Consensus Estimate in the quarter to be reported. This 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. Unfortunately, this is not the case here as elaborated below.

Earnings ESP: Earnings ESP represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate. EOG Resources has an Earnings ESP of -2.28% as the Most Accurate Estimate of $1.33 is below the Zacks Consensus Estimate of $1.36. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: EOG Resources currently carries a Zacks Rank #3. Though a Zacks Rank of 3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Energy Stocks With Favorable Combination

Here are some companies from the energy space, which, according to our model, have the right combination of elements to post an earnings beat in the upcoming quarterly reports.

Holly Energy Partners, L.P. HEP has an Earnings ESP of +1.18% and is a #2 Ranked player. The partnership is anticipated to release second-quarter 2019 earnings on Jul 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

TransCanada Corporation TRP is set to report second-quarter 2019 earnings on Aug 1. The stock has an Earnings ESP of +0.98% and a Zacks Rank #3.

Enbridge Inc. ENB is set to report second-quarter 2019 earnings on Aug 2. The stock has an Earnings ESP of +6.70% and a Zacks Rank #3.

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