Can Emerge Energy Services (EMES) Surprise Q3 Earnings?

Fracking sand player Emerge Energy Services L.P. (NYSE:EMES) is set to release its third-quarter 2016 results before the opening bell on Wednesday, Nov 2.

In the preceding three-month period, the Southlake, TX-based partnership posted a negative earnings surprise of 25.81%.

As far as the earnings surprise history is concerned, Emerge Energy Services has a dismal record: its missed estimates in each of the last four quarters with an average miss of 112.26%.

Factors to Consider This Quarter

Emerge Energy Services’ successful initiatives in controlling costs (both fixed and variable) across all aspects of its business will improve its competitive positioning and augment its bottom line.

However, following the sale of its fuels unit – the partnership’s stable earnings segment – to Sunoco L.P. (NYSE:SUN) for $178.5 million, things look bleak for the to-be-reported quarter.

Moreover, the ongoing slump in crude prices will continue to take its toll on Emerge Energy Services’ third quarter results due to cutbacks in the production of the lucrative (and high margin) fracking sand that is used as a proppant by exploration and production companies. Pricing pressure will add to the woes.

Additionally, the partnership’s high leverage and miniscule cash in hand makes Emerge Energy Services vulnerable to even a small decline in revenue and earnings.

Earnings Whispers

Our proven model does not conclusively show that Emerge Energy Services 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. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

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%. This is because the Most Accurate estimate and the Zacks Consensus Estimate both stand at a loss of 92 cents.

Zacks Rank: Emerge Energy Services has a Zacks Rank #2. Though a Zacks Rank #2 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 Emerge Energy Services, here are some firms from the energy space 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:

W&T Offshore Inc. (NYSE:WTI) has an Earnings ESP of +11.63% and a Zacks Rank #1. The company is expected to release earnings results on Nov 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Devon Energy Corp. (NYSE:DVN) has an Earnings ESP of +20.00% and a Zacks Rank #2. The partnership is anticipated to release earnings on Nov 1.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>