Why the Downgrade?
Spectra Energy witnessed downward earnings estimate revisions over the last 60 days. During the aforesaid period, the Zacks Consensus Estimate for Spectra Energy for the current quarter moved south by 9% to 31 cents. Moreover, the Zacks Consensus Estimate slipped almost 3% to $1.19 for the current year.
Also, the company lagged the Zacks Consensus Estimate in three of the last four quarters with an average earnings miss of 2.88%. These negatives are reflected in the recent price chart of the company. Over a period of three months, shares of Spectra Energy lost 1.8% compared with the Zacks categorized Oil & Gas-Production/Pipeline industry's decline of 1.7%.
The operating scenario is also not favorable for the company. It is to be noted that oil prices are trading significantly below the level it touched during mid-2014. Furthermore, natural gas prices are considerably lower than the Feb 2014 level. Given the weak commodity pricing environment, there is little incentive for upstream energy players to produce oil and natural gas. Lower production has reduced the need for transport and storage of the commodities, which in turn, might hurt the company's business.
We are also concerned about Spectra Energy's high debt level. The company has a debt-to-capitalization ratio of 53.4%.
Stocks to Consider
Some better-ranked players in the energy sector are Newfield Exploration Company NFX , McDermott International, Inc. MDR and Suncor Energy Inc. SU . All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
McDermott beat the Zacks Consensus Estimate in each of the last four quarters with an average earnings surprise of 474.04%.
Newfield surpassed the Zacks Consensus Estimate in three of the last four quarters with an average earnings surprise of 754.83%.
Suncor posted an average earnings surprise of 40.55% for the last four quarters.
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