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Factors to Know Ahead of Diamondback's (FANG) Q1 Earnings

Diamondback Energy, Inc.  FANG is scheduled to release first-quarter 2019 results after the closing bell on Tuesday, May 7. The current Zacks Consensus Estimate for the quarter under review is a profit of $1.36 per share on revenues of $875.2 million.

In the preceding three-month period, the Midland, TX-based oil and gas producer missed the consensus mark by 25.3% on lower realized prices.

As far as earnings surprises are concerned, the Permian Basin pure play has a mixed record, having gone past the Zacks Consensus Estimate twice in the last four reports. This is depicted in the graph below:

Diamondback Energy, Inc. Price and EPS Surprise

 

Diamondback Energy, Inc. Price and EPS Surprise | Diamondback Energy, Inc. Quote

Investors are keeping their fingers crossed and hoping that the company can surpass earnings estimate this time around. However, our model indicates that Diamondback might not beat on earnings in the to-be-reported quarter.

Let’s delve deeper and find out the factors impacting the results.

Factors to Consider This Quarter

Two major areas of interest – output growth and oil price realizations – are sending mixed signals with regard to Diamondback’s results in the upcoming quarter.

The surge in output should aid earnings. The 2018 purchases of Energen Corporation and Ajax Resources has transformed Diamondback into one of the leading Permian Basin oil producers. The combined company owns around 394,000 net acres in the Delaware and Midland regions with more than 7,000 drilling locations.

Our model estimates first-quarter production volumes to average 261,798 barrels of oil equivalent per day (BOE/d), improving 43% from 182,785 BOE/d in the fourth quarter and 155% above the year-ago output of 102,602 BOE/d. The significant production growth reflects last year’s twin acquisitions of Energen Corporation and Ajax Resources.

However, analysts polled by Zacks envision realized crude prices to edge down from the year-ago level, which may impact the company’s results. The Zacks Consensus Estimate for the average crude price realization in first quarter 2019 is $47.11 per barrel, lower than $62 a year ago but slightly higher than the $45.51 per barrel realized in the previous quarter. Importantly, Diamondback’s output is heavily oil-weighted with crude making up around 71% of the total production. Therefore, the company’s ‘oilier’ nature of its volume mix exposes it to the vagaries of crude sales price fluctuations.

What Does Our Model Say?

Our proven model too does not conclusively predict that Diamondback will beat the Zacks Consensus Estimate this quarter. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP:  Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -0.12%.

Zacks Rank: Diamondback currently has a Zacks Rank of 3, which increases the predictive power of ESP. But we need to have a positive Earnings ESP to be sure of the positive surprise.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Stocks to Consider

While earnings beat looks uncertain for Diamondback, here are some companies 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:

Cimarex Energy Co. XEC has an Earnings ESP of +1.95% and a Zacks Rank #2 (Buy). The company is anticipated to release earnings on May 8.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

C&J Energy Services, Inc. CJ has an Earnings ESP of +14.87% and a Zacks Rank #3. The company is anticipated to release earnings on May 7.

Abraxas Petroleum Corporation AXAS has an Earnings ESP of +133.33% and a Zacks Rank #3. The company is expected to release earnings on May 6.

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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.