Chesapeake (CHK): What's to Expect This Earnings Season?

Chesapeake Energy Corp.CHK is slated to report third-quarter 2016 results on Nov 3, before the opening bell.

Last quarter, the company posted negative earnings surprise of 55.56%. However, Chesapeake Energy delivered an average positive earnings surprise of 5.24% in the last four quarters.

Let's see how things are shaping up prior to the announcement.

Factors Likely to Affect Earnings

The pricing scenario for natural gas was much better in the third quarter, both on a sequential and an annualized basis. However, oil prices were weaker than the July-September quarter of 2015. Given that Chesapeake Energy has upstream operations, it generates cash flow after selling the commodities. Hence, its financials primarily depend on oil and gas prices. Though selling natural gas will support the company's profitability, the oil price weakness raises concerns.

We expect an improvement on the production front. This is evidenced by the substantial increase in the U.S. rig count in recent times. In fact, Baker Hughes Inc. BHI - the company's data issued since 1944 is as an important yardstick for energy service providers in gauging the overall business environment of the oil and gas industry - declared the rig count for Sep 2016. In the U.S., the total number of rigs increased from the Aug 2016 count owing to a rise in the number of land rigs. This represents the fourth consecutive increase in the U.S. monthly rig count. With the improvement in the drilling activities there might be an improvement in the company's production just like other upstream energy players.

Earnings Whispers

Our proven model does not conclusively show that Chesapeake is likely to beat earnings 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 for Chesapeake is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 4 cents. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Chesapeake holds a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, the company's 0.00% ESP makes surprise prediction difficult.

Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

CHESAPEAKE ENGY Price and EPS Surprise


Stocks to Consider

Here are some stocks from the same industry that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this season:

Vertex Energy Inc VTNR , which is expected to release earnings results on Nov 3, has an Earnings ESP of +37.50% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Spectra Energy Corp. SE has an Earnings ESP of +8.00% and a Zacks Rank #3. The company is expected to release third-quarter earnings results on Nov 2.

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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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