What's in the Cards for Chevron (CVX) This Earnings Season?

Chevron CorporationCVX is set to release third-quarter 2017 results before the opening bell on Oct 27.

In the preceding three-month period, the San Ramon, CA-based supermajor reported better-than-expected earnings, thanks to the recovery in commodity prices, production gains and successful cost-saving initiatives.

The U.S. energy giant Chevron beat estimates in three of the last four quarters, the average being 19.35%.

Chevron Corporation Price and EPS Surprise

Chevron Corporation Price and EPS Surprise | Chevron Corporation Quote

Let's see how things are shaping up for this announcement.

Factors to Consider

Price of oil at the end of the third quarter was $51.67 per barrel, up about 10.5% sequentially amid tightening supplies, improving demand outlook and OPEC deal extension talks. The upstream segment of Chevron is poised to benefit from recovering commodity prices and improvement in the international markets. Per the Zacks Consensus Estimate, income from the upstream segment for the current quarter is estimated to be $956 million, compared with $853 million recorded in the preceding quarter and $454 million in the year-ago period.

The current Zacks Consensus Estimate for the quarterly output is 2,773 thousand oil-equivalent barrels per day (MBOE/d) compared with the 2,513 MBOE/d reported in the year-ago quarter, courtesy of strong contribution from major capital projects.

However, the Zacks Consensus Estimate for the third-quarter's income from the downstream segment is pegged at $1,171 million compared with the $1,195 million reported figure in the prior quarter. We are also concerned of the cash flow deficits of the company. In the first six months of 2017, Chevron generated $8.9 billion in operating cash flow, while shelling out around $12.9 billion in capital expenditures and dividends. If the trend continues, the company will have to rely on asset sales and debt to plug the deficit.

Price Performance in Q3

During the quarter, Chevron rallied 12.6%, outperforming the broader industry 's 9.5% gain.

Earnings Whispers

Our proven model does not conclusively show that Chevron is likely to beat earnings estimates 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. This is not the case here as you will see below.

Zacks ESP : Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -6.16%. This is because the Most Accurate estimate is 98 cents, while the Zacks Consensus Estimate is pegged at $1.04. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Zacks Rank : Chevron presently carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, a negative ESP makes the surprise prediction difficult. Conversely, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks with Favorable Combination

Though earnings beat looks uncertain for Chevron Here are some companies from the energy space you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat:

Unit Corporation UNT has an Earnings ESP of +29.17% and a Zacks Rank #3. The company is likely to release third-quarter earnings results on Nov 3. You can see the complete list of today's Zacks #1 Rank stocks here.

Newpark Resources, Inc. NR has an Earnings ESP of +33.33% and a Zacks Rank #2. The company is expected to report third-quarter earnings results on Oct 30.

Suncor Energy Inc. SU has an Earnings ESP of +8.07% and a Zacks Rank #2. The company is likely to report third-quarter earnings numbers on Oct 25.

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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.

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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