Is a Beat in Store for ConocoPhillips' (COP) Q2 Earnings?

ConocoPhillips COP is scheduled to report second-quarter 2020 results on Jul 30, before the opening bell.

In the last reported quarter, the upstream energy company’s earnings of 45 cents per share beat the Zacks Consensus Estimate of 21 cents, primarily due to a decline in production and operating expenses, along with higher contributions from Lower 48 Big 3 unconventional resources. The firm beat earnings estimates twice in the trailing four quarters and missed on the other two occasions, delivering average surprise of 27.6%.

ConocoPhillips Price and EPS Surprise

ConocoPhillips Price and EPS Surprise

ConocoPhillips price-eps-surprise | ConocoPhillips Quote

Let’s see how things have shaped up prior to the earnings announcement.

Trend in Estimate Revision

The Zacks Consensus Estimate for second-quarter loss per share of 58 cents has witnessed three upward and two downward revisions by firms in the past 30 days. This estimate is indicative of a 157.4% decline from the year-ago reported figure.

The Zacks Consensus Estimate for second-quarter revenues is pegged at $4.1 billion, suggesting a decline of 51.3% from the year-ago reported figure.

What the Quantitative Model Suggests

Our proven model predicts an earnings beat for ConocoPhillips this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat.

Earnings ESP: ConocoPhillips has an Earnings ESP of +2.86%. This is because the Most Accurate Estimate for the quarter is currently pegged at a loss of 56 cents, narrower than the Zacks Consensus Estimate of a loss of 58 cents per share. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: ConocoPhillips currently carries a Zacks Rank #3.

Factors Driving the Better-Than-Expected Earnings

Being primarily involved in the exploration and production of oil and natural gas, ConocoPhillips’ earnings and revenues are directly related to commodity prices. As the demand for energy products was destroyed by coronavirus-induced lockdowns, commodity prices were significantly low in the beginning of the second quarter. The WTI Crude price averaged $16.55 per barrel in April. However, crude prices rose significantly by quarter-end, which is expected to have benefited the company’s bottom line. In June, crude prices averaged at $38.31 per barrel, marking a 131.5% rise from the first month of the quarter. As ConocoPhillips’ total production comprises more than 50% of crude, the price increase is expected to have provided an impetus in the low demand market environment.

Most of the company’s production curtailment in the June quarter was focused on oil operations and averaged around 225 thousand barrels of oil equivalent per day (MBoe/d). While the Lower 48 witnessed 65% production cut, ConocoPhillips’ Alaska and Surmont operations were reduced by 15% each. The rest of the curtailment was in its Malaysia operations. As such, the company’s second-quarter production volumes are expected within 960-980 MBoe/d, indicating a decline from the year-ago period’s 1,332MBoe/d. While lower production in the second quarter is expected to have affected the company’s profits, it is anticipated to deliver an earnings beat, aided by the rise in crude price in the latter half of the period.

Other Stocks That Warrant a Look

Here are some other companies from the Energy space that you may also want to consider, as our model shows that these too have the right combination of elements to post an earnings beat in the upcoming quarterly reports:

Canadian Natural Resources Limited CNQ has an Earnings ESP of +6.48% and is a Zacks #2 Ranked player. The company is scheduled to release second-quarter results on Aug 6. You can see the complete list of today’s Zacks #1 Rank stocks here.

Range Resources Corporation RRC has an Earnings ESP of +7.91% and a Zacks Rank of 3. It is scheduled to report second-quarter results on Aug 3.

EOG Resources, Inc. EOG has an Earnings ESP of +5.27% and holds a Zacks Rank #2. It is set to report second-quarter results on Aug 6.

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ConocoPhillips (COP): Free Stock Analysis Report

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Range Resources Corporation (RRC): Free Stock Analysis Report

Canadian Natural Resources Limited (CNQ): 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.

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