Independent exploration and production company Cabot Oil & Gas Corporation (COG) is set to release fourth-quarter and full-year 2014 results before the opening bell on Feb 20.
Cabot’s past earnings performance has been a mixed bag. The company's earnings failed to meet the Zacks Consensus Estimate in two of the trailing four quarters and thus has an average negative earnings surprise of 4.13%. Also, in the last reported quarter, Cabot failed to meet estimates owing to a fall in natural gas prices. Let’s see how things are shaping up for this announcement.
Factors to Consider
Cabot is a natural gas dominated exploration firm – about 96% of the total production comes from the commodity (per third-quarter results). A weak pricing of the commodity owing to abundant supply and mild weather is likely to reflect negatively on the upcoming earnings.
With gas prices unable to break past $3 and crude prices dipping below $50 a barrel, Cabot has not been able to extract as much value for its products as expected. This has put the group’s profit margins under pressure.
Moreover, Cabot’s capital expenditure guidance for 2014 stands at $1.45–$1.55 billion. We do not believe that this rate of capital spending at current gas price levels will be matched by increased cash flows. This might, therefore, lead to a free cash flow deficit in 2014.
Also, a majority of brokerage firms lowering their estimates for the fourth-quarter as well as full-year 2014, over the past month, is an indication of further bearishness ahead.
Earnings Whispers
Our proven model does not conclusively show that Cabot 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. Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -8.70%. This is because the Most Accurate estimate stands at 21 cents per share, while the Zacks Consensus is higher at 23 cents. Zacks Rank: Cabot carries a Zacks Rank #4 (Sell) which complicates the forecasting power of ESP. As such, we caution investors against Sell-rated stocks (#4 and 5) going into the earnings announcements. Stocks to Consider Here are some companies from the same space which, according to our model, have the right combination of elements to post an earnings beat this quarter. Bill Barrett Corp. (BBG) has an Earnings ESP of +33.33% and a Zacks Rank #3 (Hold). The company is likely to release earnings on Feb 19. Halcón Resources Corporation (HK) has an Earnings ESP of +100.00% and a Zacks Rank #3. The company is expected to release earnings on Feb 25. Ferrellgas Partners LP (FGP) has an Earnings ESP of +1.82% and a Zacks Rank #3. The company is slated to release earnings on Mar 3.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report CABOT OIL & GAS (COG): Free Stock Analysis Report FERRELLGAS -LP (FGP): Free Stock Analysis Report HALCON RESOURCS (HK): Free Stock Analysis Report BILL BARRETT CP (BBG): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research
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