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EXCO Resources (XCO): What Awaits this Earnings Season?

Zacks Equity Research
Updated

EXCO Resources Inc. XCO is set to report first-quarter 2016 results after the closing bell on May 3.

Last quarter, the upstream energy player posted a positive earnings surprise of 25.00%. Moreover, during the last four quarters, the company’s average earnings surprise came at positive 29.47%.  

Factors to Consider This Quarter

During the January–March period, crude traded below $40 per barrel. Most importantly, the West Texas Intermediate (WTI) crude fell to the 12-year low mark in mid February. On top of that, natural gas did not fare well as reflected by gas pricing fundamentals that were weaker than the prior-year quarter.

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It is to be noted that as EXCO Resources is involved in exploration, production and development of oil and gas, its business is positively correlated to the commodity prices. Hence, in order to counter low gas and oil prices the company hedged significant volume of 2016 natural gas and oil production at favorable prices.

It will be interesting to see whether the company’s hedging position drives better-than-expected results.

What Our Model Indicates

Our proven model does not conclusively show that EXCO Resources is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates. That 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 0.00% since both are pegged at a loss of 11 cents.

Zacks Rank: EXCO Resources has a Zacks Rank #2 which increases the predictive power of ESP. But we need a positive ESP to be confident of a beat.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions.

Stocks That Warrant a Look

Here are some companies in the energy sector with the right combination of elements to post an earnings beat this quarter:

Enable Midstream Partners, LP ENBL with an Earnings ESP of +21.05% and a Zacks Rank #2 (Buy).  

Hercules Offshore, Inc. HERO has an Earnings ESP of +15.24% and a Zacks Rank #2.

DCP Midstream Partners LP DPM with an Earnings ESP of +9.52% and a Zacks Rank #2.

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 >>


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
 
ENABLE MIDSTRM (ENBL): Free Stock Analysis Report
 
HERCULES OFFSHR (HERO): Free Stock Analysis Report
 
DCP MIDSTREAM (DPM): Free Stock Analysis Report
 
EXCO RESOURCES (XCO): Free Stock Analysis Report
 
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