Oil and gas explorer Encana CorporationECA is set to report fourth-quarter 2016 results on Feb 16, before the market opens.
Last quarter, the company delivered a positive earnings surprise of 500.00%. Coming to its earnings surprise history, Encana reported an average positive earnings surprise of 229.55% for the last four quarters.
Let's see how things are shaping up for this announcement.
Factors to Consider this Quarter
Encana is one of the largest natural gas companies in North America with a diverse/high quality portfolio of natural gas assets spread over Canada and the U.S. This provides the company with a huge inventory of reserves and a resource base capable of robust production growth.
Encana has been striving to reduce expenses by selling high cost/low profit generating assets. The divestiture of several such assets as part of the company's portfolio streamlining strategy should bode well.
Encana Corporation Price and EPS Surprise
In addition, the proceeds from the aforesaid asset sales are being used to lower debt burden, though much is yet to be achieved. This should offer financial flexibility to the company to better handle the current volatile market conditions.
However, Encana is a firm in the upstream industry and hence, its profit is influenced by commodity price fluctuations. With both oil and natural gas prices remaining low, Encana's revenues, earnings and cash flows will likely be affected.
Also, the company's highly-leveraged balance sheet (long-term debt of over $4 billion and a weak cash position) indicates that its financial position is under pressure. A prolonged period of low commodity prices will aggravate this problem.
Our proven model does not conclusively show that Encana is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Encana has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at earnings of 3 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter .
Zacks Rank: Encana has a Zacks Rank #3, which increases the predictive power of ESP. However, a 0.00% Earnings ESP makes surprise prediction difficult.
Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
While an earnings beat looks uncertain for Encana, here are some domestic upstream 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:
W&T Offshore, Inc. WTI is expected to release fourth-quarter earnings results on Mar 14. The company has an Earnings ESP of +73.91% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .
Sprague Resources LP SRLP has an Earnings ESP of +3.64% and a Zacks Rank #2. The partnership is anticipated to release fourth-quarter earnings on Mar 9.
Pioneer Natural Resources Company PXD has an Earnings ESP of +10.00% and a Zacks Rank #2. The company is likely to release fourth-quarter earnings on Feb 7.
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