Petrobras (PBR): Will It Disappoint This Earnings Season?

Brazilian state-run energy giant Petroleo Brasileiro S.A. or Petrobras (NYSE:PBR) is expected to release first-quarter 2016 results on Thursday, May 12.

Petrobras’ earnings were a mixed bag in the trailing four quarters – two beats and two misses – with the average being a negative surprise of 153.32%. The company missed estimates in the last reported quarter owing to significant fall in realized oil and gas prices that hurt the company’s upstream operation.

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

Factors Likely to Influence this Quarter

Petrobras generates most of its earnings from upstream operations. As such, its first-quarter financials are likely to remain challenged in the face of the persistent weakness in commodity prices.

However, being an integrated company, Petrobras is expected to take advantage of the current environment with its downstream operations. Last quarter, this unit attained profitability against a massive loss incurred in fourth-quarter 2014.

Petrobras’ reduced capital spending and divestment plans should lend further support to its financials. Also, the estimates for this quarter have been revised upward over the last 30 days, giving an indication of further bullishness ahead. So it will be interesting to see whether the Petrobras beats estimates.

Earnings Whispers

Our proven model does not conclusively show that Petrobras is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00% for Petrobras. This is because both the Most Accurate estimate and Zacks Consensus Estimate are pegged at a loss of 17 cents.

Zacks Rank: Petrobras has a Zacks Rank #3 (Hold). While a favorable Zacks Rank increases the predictive power of ESP, a 0.00% makes surprise prediction difficult.

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

Stocks to Consider

Here are some companies from the energy sector which, according to our model, have the right combination of elements to post an earnings beat this quarter.

Eco-Stim Energy Solutions, Inc. (NASDAQ:ESES) with an Earnings ESP of +9.09% and a Zacks Rank #3. The company is expected to release earnings on May 12.

Trina Solar Limited (NYSE:TSL) with an Earnings ESP of +43.48% and a Zacks Rank #3. The company is expected to release earnings on May 19.

SeaDrill Limited (NYSE:SDRL) with an Earnings ESP of +2.63% and a Zacks Rank #3. The company is slated to release earnings on May 26.