Denver, CO-based upstream company QEP Resources Inc. ( QEP ) is set to release fourth-quarter 2014 results after the closing bell on Feb 24.
In the last four quarters, the company delivered a positive earnings surprise of 15.62%. Let's see how things are shaping up for this announcement.
Factors to Consider This Quarter
With the third-quarter earnings release, QEP Resources announced that it will likely produce 75.4−80.2 billion cubic feet equivalent of gas in the October to December quarter of 2014. Of this, about 53% is expected to be natural gas and the rest, liquid. Let's have a look at pricing scenario of oil and gas during the quarter, since the company generates earnings after selling both the commodities.
Throughout the fourth quarter, natural gas traded much below the commodities' marginal cost of production − usually $5-$6 per MMBtu − in North America.
We also saw a free fall in West Texas Intermediate (WTI) crude − the other commodity which will likely comprise 47% of the company's total output − during the quarter. The oil price fell from $90.74 per barrel to as low as $53.45 per barrel.
Hence, we can see that prices of both the commodities were not favorable for an earnings beat by the company.
Our proven model also does not conclusively show that QEP Resources - which split from Questar Corp. ( STR ) in 2010 - is likely to beat earnings 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.
Negative Zacks ESP: This is because the Most Accurate estimate stands at 25 cents, while the Zacks Consensus Estimate is higher at 26 cents. This results in an ESP of -3.85%.
Zacks Rank: QEP Resources carries a Zacks Rank #3 (Hold). While this increases our predictive power, a negative ESP complicates our predictive power.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
While an earnings beat looks uncertain for QEP Resources, here are two energy firms you may want to consider as they have the right combination of elements to post an earnings beat this quarter:
Holly Energy Partners L.P ( HEP ) has an Earnings ESP of +7.90% and a Zacks Rank #2 (Buy). The partnership is likely to release earnings on Feb 24.
Global Partners LP ( GLP ) has an Earnings ESP of +75.00% and a Zacks Rank #2. The partnership is expected to release earnings on Mar 12.