Southwestern Energy (SWN) Q1 Earnings: What's In The Cards?

Southwestern Energy Company (NYSE:SWN) is set to release first-quarter 2018 results after the closing bell on Apr 26.

Spring, TX-based Southwestern Energy is an independent energy company. In the trailing four quarters, the company witnessed a negative average earnings surprise of 9.6%, missing two estimates. Let’s see how things are shaping up for this announcement.

Which Way are Estimates Trending?

Let’s take a look at the estimate revisions to get a clear picture of what analysts are thinking about the company before earnings release.

The Zacks Consensus Estimate of 26 cents for the first quarter has seen four upward and two downward revisions by firms in the last 60 days. It reflects year-over-year growth of about 44.4%.

Further, analysts polled by Zacks expect revenues of $900.4 million in the upcoming results, reflecting an improvement of 6.4% from the year-ago quarter.

Factors at Play

The Zacks Consensus Estimate for first-quarter total oil production is pegged at 597 thousand barrels (Mbbls), up from 519 Mbbls in the year-ago period and 580 Mbbls in the last reported quarter. The Zacks Consensus Estimate for total gas production for the January-March quarter is 199 billion cubic feet (Bcf), up from 183 Bcf in the year-ago period but down from 210 Bcf in the last reported quarter. The Zacks Consensus Estimate for the quarter’s total production is 219 billion cubic feet equivalent (Bcfe), up 7.4% year over year but down 8.4% sequentially.

Moreover, the Zacks Consensus Estimate for average oil price per barrel (including hedges) is $53, up from $43.74 in the previous year quarter and $48.05 in the last reported quarter. The Zacks Consensus Estimate for average realized gas price is $2.67 per thousand cubic feet (Mcf), up from $2.57 in first quarter 2017 and $2.12 in the fourth quarter 2017. Revenue for the upstream operations will likely improve year over year, thanks to the higher expected commodity prices and production.

However, analysts polled by Zacks expect lease operating expenses to be 92 cents per thousand cubic feet equivalent, up 3.4% from the prior-year quarter and 1.1% sequentially. Moreover, The Zacks Consensus Estimate for gas volumes gathered in Midstream services for the quarter is 114 Bcf, 11.6% down from the year-ago period.

Additionally, it is to be noted that Southwestern Energy’s high-debt level raises concern. It has a debt-to-capital ratio of 68.9%, while the broader industry average is 46.8%.

What Does Our Model Unveil?

Our proven model does not show that Southwestern Energy 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 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: Earnings ESP represent the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Southwestern Energy has an ESP of -5.74% as the Most Accurate estimate stands at 24 cents while the Zacks Consensus Estimate is pegged at 26 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Southwestern Energy carries a Zacks Rank #3. Though a Zacks Rank of #3 increases the predictive power of ESP, a negative ESP 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.

Energy Stocks With Favorable Combination

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

Frisco, TX-based Comstock Resources, Inc. (NYSE:CRK) has a Zacks Rank #2 with an Earnings ESP of +37.34%. The company will report earnings on May 14.

Houston, TX-based Oil States International, Inc. (NYSE:OIS) has a Zacks Rank #3 and an Earnings ESP of +16.83%. The company will report earnings on Apr 25.

Denver, CO-based Antero Resources Corporation (NYSE:AR) has a Zacks Rank #3 with an Earnings ESP of +7.28%. The company will report earnings on Apr 25.

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