Will ConocoPhillips Disappoint This Earnings Season?

Leading exploration and production company, ConocoPhillips COP is set to release its third-quarter 2017 financial results before the opening bell on Oct 26.

Last quarter, the company delivered an impressive 800.0% positive earnings surprise due to higher realized prices for the commodities it had sold and production ramp up on the back of numerous key developments. The company also delivered positive average earnings surprise of 134% in the last four quarters. Let's see how things are shaping up for this announcement.

Which Way Are Estimates Treading?

Let's look at estimate revisions in order to get a clearer picture of analyst opinion on the stock before the earnings release.

The Zacks Consensus Estimate has increased from 6 cents per share for the third quarter to 9 cents per share in the last 30 days with one firm being bearish and four firms being bullish. The estimate reflects a year-over-year improvement of about 114%.

Factors Likely to Influence this Quarter

The Zacks Consensus Estimate for average sale price of natural gas is $4.09 per thousand cubic feet (Mcf), higher than last quarter's $3.83 per Mcf and the year-ago quarter's $2.83 per Mcf. However, the Zacks Consensus Estimate for natural gas production for the third quarter has declined to 2,920 million cubic feet per day (Mmcfd) from 3,499 Mmcfd in the last quarter and 3,777 Mmcfd in the year-ago quarter.

The average sales price of natural gas liquids for the third quarter is estimated to be $25.45 per barrel, higher than the reported price of last quarter's $20.96 per barrel and $16.55 per barrel in the year-ago quarter. Production is expected to fall to 102 thousand barrel per day (MBD) from second-quarter production of 127 MBD and the year-ago quarter's production of 148 MBD.

Average crude oil sales price is expected to be $48.12 per barrel, marginally lower than second quarter's $48.16 per barrel. However, it is higher than the year-ago quarter's price of $45. The production of crude oil per day for the third quarter is expected to fall to 571 MBD from previous quarter's 590 MBD and the year-ago quarter's 586 MBD.

Though we expect average realized prices in the third quarter to increase for all the commodities, their production is expected to decrease. The fall in production can be primarily attributed to the company's asset sales in 2017. These divestures include the sale of the mining operations in Foster Creek Christina Lake oil sands and Western Canada's Deep Basin gas assets. The company also closed the divesture deals of San Juan asset and Barnett asset in the third quarter of 2017. Hence, it is difficult to conclusively predict the net impact on third-quarter results.

Q3 Price Performance

ConocoPhillips has gained 13.8% in the third quarter compared with 9.1% growth of its industry.

Earnings Whispers?

Our proven model does not conclusively show that ConocoPhillipsis likely to beat the Zacks Consensus Estimate this quarter. 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, that is not the case here as elaborated below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -18.92% as the Most Accurate estimate stands at 8 cents while the Zacks Consensus Estimate is pegged higher at 9 cents.

Zacks Rank: ConocoPhillips has a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

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

Stocks to Consider

Here are some companies that you may consider as our model shows these have the right combination of elements to post an earnings beat this quarter.

Bill Barrett Corporation BBG is an independent exploration and production company based in Denver, CO. It has Earnings ESP of +10.90% and a Zacks Rank #2.

Canadian Natural Resources Limited CNQ is an exploration and production company. It has Earnings ESP of +7.46% and a Zacks Rank #2.

Cenovus Energy Inc CVE is an integrated oil major from Canada. The company has an Earnings ESP of +40.0% and a Zacks Rank #2.

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Canadian Natural Resources Limited CNQ: Free Stock Analysis Report
 
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ConocoPhillips COP: Free Stock Analysis Report
 
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