Can Canadian Natural (CNQ) Pull A Surprise In Q1 Earnings?

Independent oil and gas explorer Canadian Natural Resources Ltd. (TO:CNQ) is set to release its first-quarter 2018 results before the opening bell on Thursday, May 3. The current Zacks Consensus Estimate for the quarter under review is a profit of 57 cents on revenues of $4,160 million.

In the preceding three-month period, the Calgary, Alberta-based upstream player reported profit of 37 cents.

As far as earnings surprises are concerned, the company is on a bit of a slippery slope, having missed the Zacks Consensus Estimate twice in the last four reports. This is depicted in the graph below:

Investors are keeping their fingers crossed and hoping that Canadian Natural surpasses earnings estimate this time around. Let’s delve deeper and find out the factors impacting the results.

Factors to Consider This Quarter

We believe that the improving oil price environment amid a favorable shift in Canadian Natural’s product mix toward the commodity bode well.

Canadian Natural is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. The company has a strong and diverse production base with long-life and low decline rate assets. In the last quarter, the company witnessed a 19% year-over-year increase in production. With Canadian Natural’s solid assets and strong project execution, we expect this trend to continue in the fourth quarter as well.

Moreover, the upstream player is poised to benefit from higher crude price realizations. Benchmark crude oil prices have risen sharply over the past nine months amid continued declines in domestic inventories and an improving supply-demand narrative. With fundamentals pointing to a tighter market, the Zacks Consensus Estimate for the average sales price for crude oil in first quarter 2018 is $61 per barrel, up from $45 a year earlier.

However, the shortage of pipelines and rail transportations has disrupted the production schedule of the companies in Western Canada. The likes of Canadian natural had to slow down their activity levels due to difficulty in crude transportation. This might lead to lower-than-expected quarterly production.

Moreover, Canadian Natural pursues long-term oil projects, which call for large capital outlays and several years of development before any cash flow is realized. Therefore, cost and time overrun in the ongoing projects may have a negative impact on the stock’s company’s upcoming quarterly performance.

Earnings Whispers

Our proven model does not conclusively show that Canadian Natural will 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 consensus estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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, for Canadian Natural stands at 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate both stand at 57 cents.

Zacks Rank: Canadian Natural has a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

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

While earnings beat looks uncertain for Canadian Natural, here are some energy companies you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this quarter:

EOG Resources, Inc. (NYSE:EOG) has an Earnings ESP of +3.33% and a Zacks Rank #1. The firm is anticipated to release earnings on May 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apache Corp. (NYSE:APA) has an Earnings ESP of +0.29% and a Zacks Rank #3. The firm is likely to release earnings on May 2.

Continental Resources, Inc. (NYSE:CLR) has an Earnings ESP of +3.10% and a Zacks Rank #3. The utility is likely to release earnings on May 2.

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