Canadian oil and natural gas producer Encana Corporation ECA is slated to release first-quarter 2018 results on Tuesday, May 1. The current Zacks Consensus Estimate for the quarter under review is a profit of 13 cents on revenues of $1,110 million.
In the preceding three-month period, the company reported operating earnings per share of 12 cents, beating the Zacks Consensus Estimate of 10 cents. Production growth from its core assets and higher realized liquids prices led to the outperformance .
As far as earnings surprises are concerned, the Calgary, Alberta-based upstream operator is on a solid footing, having gone past the Zacks Consensus Estimate thrice in the last four reports. This is depicted in the graph below:
Encana Corporation Price and EPS Surprise
Encana Corporation Price and EPS Surprise | Encana Corporation Quote
Investors are keeping their fingers crossed and hoping that Encana surpasses earnings estimate this time too.
However, things do not look too bright for the company in the quarter under review. In fact, the pessimistic sentiment surrounding the stock can be gauged from the Zacks Consensus Estimate for the first quarter, which moved down 23.5% over the last 30 days.
Let's delve deep to find out the factors likely to impact Encana's first-quarter results.
Factors to Consider This Quarter
We believe that the improving oil price environment amid a favorable shift in Encana's product mix toward the commodity bode well.
Few years back, natural gas accounted for around 95% of Encana's output. In the last reported quarter, the figure came down to 55%, chiefly due to a slew of acquisitions and divestitures since 2013 that has repositioned its asset base. The transition to crude - which are generally more profitable to churn out than natural gas because of higher price realizations - is a big positive for the company going into the first quarter.
As it is, benchmark crude oil prices have risen sharply over the past nine months. At the end of the first quarter, oil was trading at around $65 per barrel - in a sweet spot compared to the corresponding period of 2017 when crude futures hovered around the $50 per barrel mark.
However, creeping service cost inflation remain an issue as rising prices might reduce profit margin.
What Does Our Model Say?
Our proven model too does not conclusively show that Encana will beat estimates this 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 consensus estimates. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -10.99%.
Zacks Rank: Encana is #3 Ranked. 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.
Stocks to Consider
While earnings beat looks uncertain for Encana, here are some firms from the energy space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this quarter:
EOG Resources, Inc. EOG has an Earnings ESP of +4.71% and a Zacks Rank #1. The firm is expected to release earnings on May 3. You can see the complete list of today's Zacks #1 Rank stocks here .
TransCanada Corporation TRP has an Earnings ESP of +2.52% and a Zacks Rank #3. The company is likely to release earnings on Apr 27.
Transocean Ltd. RIG has an Earnings ESP of +2.64% and a Zacks Rank #3. The company is anticipated to release earnings on Apr 30.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Encana Corporation (ECA): Free Stock Analysis Report Transocean Ltd. (RIG): Free Stock Analysis Report TransCanada Corporation (TRP): Free Stock Analysis Report EOG Resources, Inc. (EOG): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research