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Cheasapeake (CHK): What's in Store this Earnings Season?

Oklahoma-based Cheasapeake CorporationCHK is expected to report fourth-quarter 2016 earnings on Feb 23, before the opening bell.

Last quarter, the company managed to surpass the Zacks Consensus Estimate. Moreover, Cheasapeake had average positive earnings surprise of 71.10% in the last four quarters. Let's see how things are shaping up for this announcement.

Factors Likely to Affect Earnings

Although oil prices remained low in the first two months of the fourth quarter, the commodity advanced after OPEC decided to cut production. On Nov 30, the cartel reached a historic accord to curb output in keeping with the need to recover from the weak pricing scenario. Notably, this is the first time since 2008 that OPEC signed a deal to cut oil production.

Soon after, non-OPEC players also jumped on the bandwagon to limit crude output. Following the historic deal, crude started moving north and even crossed the psychological $50 per barrel mark. In fact, throughout December the commodity was sold above the benchmark.

Overall, the last month of the fourth quarter was favorable for oil exploration and production (E&P) companies. The improved rig count data issued by Baker Hughes Inc. BHI clearly indicates that more and more of these firms are gathering to the oil patches.

The company also expects production growth in the range of flat to 3% increase in 2016, which along with improving crude, could favor fourth-quarter earnings.

Despite these positives, Cheasapeake shares underperformed the Zacks categorized Oil & Gas-U.S Exploration & Production industry in the last three months. During the aforesaid period, shares of the company fell 4.3% compared with almost 3% decrease for the broader industry.

Earnings Whispers

Our proven model does not conclusively show that Chesapeake is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. 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 currently -42.86%. This is because the Most Accurate estimate stands at 4 cents while the Zacks Consensus Estimate is pegged higher at 7 cents.

Zacks Rank: Chesapeake carries a Zacks Rank #3. Though Chesapeake's favorable Zacks Rank increases the predictive power of ESP, its negative Earnings ESP makes surprise prediction difficult.

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

Stocks to Consider

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

Enable Midstream Partners LP ENBL has an Earnings ESP of +11.77% and Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

W&T Offshore, Inc. WTI has an Earnings ESP of +66.67% and a Zacks Rank #1.

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Enable Midstream Partners, LP (ENBL): Free Stock Analysis Report

Baker Hughes Incorporated (BHI): Free Stock Analysis Report

Chesapeake Energy Corporation (CHK): Free Stock Analysis Report

W&T Offshore, Inc. (WTI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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