Can Newfield (NFX) Pull A Surprise This Earnings Season?

Newfield Exploration Company (NYSE:NFX) is expected to report third-quarter 2016 earnings on Nov 1.

Last quarter, the company’s adjusted earnings of 32 cents per share beat the Zacks Consensus Estimate of 15 cents. The company had reported adjusted profit of 46 cents per share a year ago. In fact, Newfield Exploration posted an average positive earnings surprise of 761.72% in the last four quarters.

Let’s see how things are shaping up prior to the announcement.

Factors Likely to Affect Earnings

Newfield Exploration’s exposure to emerging resource plays, along with its shift of focus from natural gas into liquids, will help it to grow in the Exploration and Production space. In the second quarter, the company reported strong oil and gas production of 15.3 million barrels of oil equivalent that comprised 45% oil, 18% natural gas liquids (NGLs) and 37% natural gas. The company is likely to continue displaying its robust performance in the third quarter as well.

Moreover, the major portion of 2016 capital expenditure is expected to be spent on liquid-rich operations of the Anadarko basin. This should drive production and boost profitability in the third quarter as well as in the upcoming period.

However, Newfield Exploration’s Rockies and Gulf Coast-centered asset portfolio and the lack of meaningful exposure to emerging shale plays is a competitive disadvantage. The company’s dependence on the successful development of its liquid-rich plays in the Uinta Basin, Granite Wash and North Dakota Bakken for the majority of its production raises significant risks. Going forward, this is likely to adversely impact operations and hence, earnings. Further, we believe that the company’s production is likely to decrease in 2016 as it might suspend drilling in the Uinta Basin and Eagle Ford.

Earnings Whispers

Our proven model does not conclusively show that Newfield Exploration is likely to beat estimates this quarter as it does not have the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. 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 both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 24 cents. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Newfield Exploration currently has a Zacks Rank #2. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

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

Stocks to Consider

While an earnings beat looks uncertain for Newfield Exploration, here are some firms that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat this quarter:

Vertex Energy Inc (NASDAQ:VTNR) , which is expected to release earnings results on Nov 3, has an Earnings ESP of +37.50% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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

Spectra Energy Corp. (NYSE:SE) has an Earnings ESP of +12.50% and a Zacks Rank #3. The company is expected to release third-quarter earnings results on Nov 2.

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