Is a Beat Likely for Concho Resources This Earnings Season?

We expect Concho Resources Inc. CXO to beat on earnings when it reports third-quarter 2019 results, after the closing bell on Tuesday Oct 29.

The current Zacks Consensus Estimate for earnings is pegged at 65 cents per share on revenues of $1,084 million.

Let’s delve deeper and find out the factors likely to impact the to-be-reported results.

Factors to Consider for Q3 Results

Two major areas of interest — output growth and oil price realizations — are conveying mixed vibes in relation to Concho Resources’ upcoming quarterly release. However, the positive impact of the scaled-up production is likely to have offset slightly moderate prices.

The Zacks Consensus Estimate for third-quarter production volumes is pegged at average 323,541 barrels of oil equivalent per day (Boe/d), indicating a slight decline from 328,681 BOE/d in the second quarter. But volumes are likely to be 12.9% above the year-ago output of 286,634BOE/d. Strong year-over-year production growth reflects the synergies of the 2018 RSP Permian acquisition.

Meanwhile, the Zacks Consensus Estimate for realized crude prices indicates a dip from the year-ago reported figure, which may limit the company’s profitability. The Zacks Consensus Estimate for the average crude price realization (with derivatives) in the third quarter is pegged at $53 per barrel, indicating 1.8% decline from the year-earlier reported figure but flat from the sequential quarter.

Importantly, Concho Resources’ output is heavily oil-weighted with liquids making up around 63% of the total production. Therefore, the ‘oilier’ nature of the company’s volume mix exposes it to crude sales price fluctuations.

Why a Likely Positive Surprise?

Our proven model predicts an earnings beat for Concho Resources this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Concho Resources has an Earnings ESP of +1.89%.

Zacks Rank: Concho Resources currently has a Zacks Rank #3, which increases the predictive power of ESP.

Highlights of Q2 Earnings & Surprise History

Concho Resources reported mixed second-quarter 2019 results, wherein earnings missed the Zacks Consensus Estimate while revenues beat the same.

The company reported earnings per share (excluding non-cash and special items) of 69 cents, lagging the Zacks Consensus Estimate of 74 cents. This underperformance can be attributed to high operating costs incurred in the quarter. Lower-than-expected realized prices (including derivatives impact) also dented earnings. The metric came in at $36.02 per barrel of oil equivalent, falling short of the consensus estimate of $37.44.

Further, the bottom line declined almost 44% from the prior-year reported figure due to lower realized prices and massive impairment charges.

As far as earnings history is concerned, this Texas-based company’s bottom line fell shy of the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 0.75%. This is depicted in the graph below:

Concho Resources Inc. Price and EPS Surprise

Concho Resources Inc. Price and EPS Surprise

Concho Resources Inc. price-eps-surprise | Concho Resources Inc. Quote

Other Stocks to Consider

Here are some other stocks worth considering from the energy space with the right combination of elements to also beat on earnings in the upcoming quarterly reports:

The Williams Companies, Inc. WMB has an Earnings ESP of +1.63% and a Zacks Rank of 3. This energy infrastructure provider is scheduled to release earnings on Oct 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

National Oilwell Varco, Inc. NOV has an Earnings ESP of +16.00% and is a #3 Ranked stock. This manufacturer and designer of equipment used in onshore and offshore oil and gas drilling is scheduled to release earnings on Oct 28.

Gulfport Energy Corporation GPOR has an Earnings ESP of +3.40% and is Zacks #3 Ranked. This Oklahoma-based company engaged in the acquisition, exploration, development and production of oil and natural gas properties in the United States is scheduled to release earnings on Oct 31.

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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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