EOG Resources (EOG): What's In The Cards In Q3 Earnings?

EOG Resources Inc. (NYSE:EOG) is expected to report third-quarter 2016 earnings on Nov 3, after the market closes.

In the last reported quarter, the company incurred loss of 38 cents per share, narrower than the Zacks Consensus Estimate of a loss of 49 cents. The quarterly results compared unfavorably with the year-ago quarter adjusted earnings of 28 cents amid weak commodity prices and lower production volumes.

EOG Resources’ has an excellent earnings history. The company managed to beat the Zacks Consensus Estimate in all of the trailing four quarters.

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

Earnings Whispers

Our proven model shows that EOG Resources is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate is +3.33%. This is because the Most Accurate estimate stands at a loss of 29 cents, while the Zacks Consensus Estimate is pegged at a loss of 30 cents. This is very meaningful and a leading indicator of a likely positive earnings surprise. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: EOG Resources has a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings.

Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.

The combination of EOG Resources’ favorable Zacks Rank and a positive ESP makes us confident about an earnings beat.

Factors Likely to Influence this Quarter

EOG Resources’ $2.5 billion acquisition of private operator Yates Petroleum would expand its presence in the Delaware Basin, Northwest Shelf, Powder River Basin and other plays across the western United States. The company will also gain access to an additional 1.1 million net acres in New Mexico, Wyoming, Colorado, Montana, North Dakota and Utah. The combination of EOG Resources’ strong technical capabilities along with the massive resource potential of the Yates acreage is expected to create significant value for shareholders as well as support bottom-line growth.

EOG Resources is an exploration and production firm with large oil exposure. About 46% of its net proved reserves is accounted for by the commodity. This makes it highly susceptible to the weakness in crude price. As such, the company has reduced its capital expenditure budget for 2016 by 47% and expects to spend in the range of $2.4–$2.6 billion

However, EOG Resources’ sensitivity to gas/oil price volatility, as well as drilling results, costs, geo-political risks and project delays, limit the upside potential in the quarter. Price realization is an important component of the margin of exploration and production firms owing to the persistent rise in exploration costs.

Stocks to Consider

Here are some companies from the same space which, according to our model, 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.

Newfield Exploration Company (NYSE:NFX) has an Earnings ESP of +4.17% and a Zacks Rank #2. The company is expected to release third-quarter earnings results on Nov 1.

Pioneer Natural Resources (NYSE:PXD) , which is slated to release earnings results on Nov 1, has an Earnings ESP of +5.88% and a Zacks Rank #3.

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