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Diamond Offshore (DO): What to Expect in Q2 Earnings?

Leading contract driller Diamond Offshore Drilling Inc.DO is expected to report second-quarter 2016 earnings on Aug 1.

In the last quarter, the company's earnings of 64 cents per share crushed the Zacks Consensus Estimate of 28 cents. In fact, the company posted an average positive earnings surprise of 74.89% in the last four quarters. Let's see how things are shaping up prior to the announcement.

Factors Likely to Influence This Quarter

Diamond Offshore Drilling remains in good financial health and has a track record of disciplined capital outlays and financial conservatism. As of Mar 31, 2016, the company had approximately $128.9 million in cash and cash equivalents, while its long-term debt totaled $1,980.1 million. Diamond Offshore Drilling stresses on boosting its operational performance to survive amid the prolonged downturn in the oil and gas industry.

DIAMOND OFFSHOR Price and EPS Surprise

DIAMOND OFFSHOR Price and EPS Surprise | DIAMOND OFFSHOR Quote

However, Diamond Offshore Drilling is an offshore drilling company, which makes it heavily reliant on the volume of capital expenditure by the exploration and production sector. The current volatility in the oil and gas prices has put pressure on the activity level of the companies from this sector, thereby affecting the company's profit levels.

Moreover, the company lacks visible catalysts, which are important for it to renew its fleet in order to improve its position in an extremely competitive marketplace.

Earnings Whispers

Our proven model does not conclusively show that Diamond Offshore Drilling 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. This 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 -233.33%. This is because the Most Accurate estimate stands at a loss of 4 cents, while the Zacks Consensus Estimate is pegged at earnings of 3 cents.

Zacks Rank : Diamond Offshore Drilling currently carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #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 to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Legacy Reserves LP LGCY has an Earnings ESP of +31.58% and a Zacks Rank #1.

Northern Oil and Gas, Inc. NOG has an Earnings ESP of +20.00% and a Zacks Rank #1.

Spectra Energy Corp SE has an Earnings ESP of +16.00 % and a Zacks Rank #2.

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SPECTRA ENERGY (SE): Free Stock Analysis Report

DIAMOND OFFSHOR (DO): Free Stock Analysis Report

LEGACY RESERVES (LGCY): Free Stock Analysis Report

NORTHRN OIL&GAS (NOG): 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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