What's In Store For SM Energy (SM) This Earnings Season?

SM Energy Company (NYSE:SM) is scheduled to report fourth-quarter 2017 earnings on Feb 21, after the closing bell.

The upstream energy player surpassed the Zacks Consensus Estimate in the last quarter, the positive earnings surprise being 21.9%. For the trailing four quarters, the company has an average positive earnings surprise of 48.1%.

Let’s see how things are shaping up for this announcement.

Which Way Are Estimates Treading?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts expect from the company’s upcoming earnings release.

The Zacks Consensus Estimate of loss of 15 cents for the current quarter has remained stable over the last seven days. It reflects an improvement of about 51.6% from the year-ago quarter.

Factors at Play

The West Texas Intermediate (WTI) crude increased almost 20% in the October-to-December quarter of 2017, per The U.S. Energy Information Administration (EIA). Through most of November and the entire December, the commodity traded above the $55-per-barrel psychological mark. The extension of the production cut deal by OPEC players supported the rally in crude.

On Nov 30, 2017, OPEC members met non-OPEC players to decide on an extension of the crude production cut accord, first signed in late 2016, beyond the first quarter of 2018. More than 20 oil producers, including leading exporters like Russia and Saudi Arabia, participated in the meeting. As expected by most analysts, all crude exporters decided to extend the deal through 2018-end. Saudi Arabia, Russia and their allies have pledged to put 1.8 million barrels a day of crude oil out of the market through the end of this year.

Improvement in crude prices is likely to be favorable for crude explorers like SM Energy. However, the company’s balance sheet does not seem to be strong. This is because the firm’s debt-to-capitalization ratio of 53.4% is higher than the industry’s 49.4%.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for SM Energy 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 -13.17%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: SM Energy carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.

Meanwhile, we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a couple of companies which, per our model, have the right combination of elements to post an earnings beat this quarter:

Houston, TX-based EOG Resources (NYSE:EOG) is an upstream company. It has an Earnings ESP of +4.06% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

WildHorse Resource Development Corp. (NYSE:WRD) , based in Houston, TX, is also an upstream energy firm. It has an Earnings ESP of + 5.26% and a Zacks Rank #1.

Dallas, TX-based RSP Permian, Inc. (NYSE:RSPP) is an upstream energy company with an Earnings ESP of +1.64%. It is a Zacks #1 Ranked player.

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