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Is it Worth Holding EOG Resources (EOG) in Your Portfolio?


We issued an updated research report on upstream energy company EOG Resources Inc. EOG on May 16, 2017. The firm’s growth profile is attractive and it has a huge inventory of drilling opportunities. However, the company’s increasing exploration costs raise concerns.

EOG Resources currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.

The company has huge acreages in oil shale plays like Permian, Bakken and Eagle Ford. Most importantly, EOG Resources is among the leading players in the Bakken play and the largest in the Eagle Ford.

Given that shale players are gathering at domestic oil resources over the last few months and ramping up production following the oil price recovery from the mid-Feb 2016 lows, we expect EOG Resources to benefit considerably. During first-quarter 2017, the company’s earnings met the Zacks Consensus Estimate but the top line beat estimates. The results were supported by increased liquid production as well as higher oil and gas price realizations.

Moreover, the pricing chart of EOG Resources shows significant strength. The company’s shares outperformed the Zacks categorized Oil & Gas-U.S Exploration and Production industry over the last one year. During the aforesaid period, EOG Resources’ shares gained 16.7% while the broader industry declined 7.9%.

However, we are concerned with the increase in exploration expenses during the first three months of this year. If the trend continues, EOG Resources' financial and operational performances could be hurt in the coming quarters.

Also, the Zacks Consensus Estimate for EOG Resources’ second-quarter 2017 earnings has been revised downward over the last 30 days. The Zacks Consensus Estimate for full-year 2017 has also moved revised south over the same time span.

Stocks to Consider

Some better-ranked players in the energy sector include Canadian Natural Resources Limited CNQ, McDermott International Inc. MDR and W&T Offshore Inc. WTI. Canadian Natural and McDermott sport a Zacks Rank #1 (Strong Buy), while W&T Offshore carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

We expect year-over-year earnings growth for Canadian Natural to be 720% for the current year.

McDermott beat the Zacks Consensus Estimate in each of the trailing four quarters with an average positive surprise of 387.50%.

W&T Offshore had an average positive earnings surprise of 69.21% in the last four quarters.

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