Offshore drilling contractor Hercules Offshore Inc.HERO is set to release second-quarter 2015 results before the opening bell on Thursday, Jul 23.
Last quarter, the Houston, TX-based firm delivered a positive average surprise of 10.26% despite the challenges that a steep drop in oil price tagged along. This was primarily owing to strong cost control measures.
Let's see how things are shaping up for this announcement.
Factors to Consider This Quarter
Oil price during the Apr-Jun 2015 quarter hovered mostly between $50 and $60 per barrel. This was considerably below the prior-year quarter level, when crude was trading above the $100 per barrel mark. The oil plunge is a threat to the offshore drilling fraternity which is already has a bleak industry outlook with oversupplied drilling rigs.
With the weakness in oil prices , the majority of the upstream energy players are reducing their exploration and production activities as each one of their business is positively correlated with crude. Eventually, the demand for drillers also went down.
However, to some extent, Hercules Offshore's successful cost reduction initiatives are expected to lessen the negative impact on the results.
Our proven model does not conclusively show that Hercules Offshore is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 4.55%. The Most Accurate estimate for Hercules Offshore stands at a loss of 42 cents while the Zacks Consensus Estimate is pegged wider at a loss of 44 cents.
Zacks Rank: Hercules Offshore carries a Zacks Rank #4 (Sell). Although the company has a positive ESP, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
While earnings beat looks uncertain for Hercules Offshore, here are some firms with the right combination of elements to post an earnings beat this quarter:
NuStar Energy LP NS with Earnings ESP of + 10.71% and a Zacks Rank #1 (Strong Buy). The company is expected to release earnings on Jul 24.
CONSOL Energy Inc. CNX with Earnings ESP of + 14.29% and a Zacks Rank #2 (Buy). The company is slated to release earnings on Jul 28.
Suncor Energy Inc. SU with Earnings ESP of +45.46% and a Zacks Rank #2. The company is likely to release earnings on Jul 29.