Can Newfield Exploration (NFX) Surprise In Q2 Earnings?

Newfield Exploration Company (NYSE:NFX) is set to report second-quarter 2016 results on Aug 2.

The company reported stable results in the trailing four quarters, beating the Zacks Consensus in each, with a positive average surprise of 772.27%. In the last reported quarter, Newfield Exploration’s loss per share of 9 cents came narrower than the Zacks Consensus Estimate of 10 cents loss per share. Let’s see how things are shaping up for this announcement.

Factors to Consider

Woodlands, TX based Newfield Exploration is an independent energy company engaged in the exploration and production (E&P) of crude oil and natural gas.

Almost throughout second-quarter 2016, oil price improved significantly from mid-February when West Texas Intermediate (WTI) crude fell to a 12-year low mark of $26.05 per barrel. Moreover, last month, oil prices settled above the psychologically important $50 per barrel level for the first time in more than 10 months. Yet, prices are still weak and predictably, Newfield Exploration was able to extract less value for its products. This is sure to put pressure on the company’s second-quarter profit margins.

With the volatility in oil prices, the top energy companies cut spending (in particular on the costly drilling projects) to make up for lower profit margins. This, in turn, meant less work for the beleaguered drillers as exploration for new oil and gas projects almost came to a standstill in the quarter to be reported.

Earnings Whispers

Our proven model does not conclusively show that Newfield is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: Newfield has an Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 15 cents.

Zacks Rank: Newfield carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP. However, a 0.00% ESP complicates our surprise prediction.

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

Stocks to Consider

Some stocks from the energy space which, according to our model, have the right combination of elements to post an earnings beat this quarter are:

Legacy Reserves LP (NASDAQ:LGCY) with an Earnings ESP of +31.58% and a Zacks Rank #2.

Northern Oil and Gas, Inc. (NYSE:NOG) with an Earnings ESP of +20.00% and a Zacks Rank #1.

Spectra Energy Corp (NYSE:SE) with an Earnings ESP of +12.00 % and a Zacks Rank #2.