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Is a Beat in Store for Cimarex Energy (XEC) in Q4 Earnings?

Zacks

Cimarex Energy Co. XEC is set to report fourth-quarter 2017 results on Feb 14, after the closing bell.

Last quarter, the upstream energy player posted a positive earnings surprise of 12.4%. Moreover, Cimarex Energy delivered an average positive earnings surprise of 12.3% in the last four quarters.

Cimarex Energy Co Price and EPS Surprise

Cimarex Energy Co Price and EPS Surprise | Cimarex Energy Co Quote


Which Way Are the Estimates Trending?

Let’s take a look at the estimate revision trend to get a clear picture of analyst opinion on the stock before the earnings release.

The Zacks Consensus Estimate of $1.38 for fourth-quarter earnings has been revised upward over the last 30 days, with 18 firms being bullish and three firms taking a bearish stance. The consensus estimate reflects year-over-year improvement of 130%.

Further, analysts polled by Zacks expect revenues of $534.7 million in the upcoming results, showing an increase of 39.9% from the year-ago quarter.

Why a Likely Positive Surprise?

Our proven model does not show that Cimarex Energy is likely to beat earnings this quarter. This is because a stock needs to have 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: Cimarex Energy’s Earnings ESP is +0.88%. This is because the Most Accurate estimate is pegged at $1.39, while the Zacks Consensus Estimate is $1.38. A favorable ESP serves as a meaningful indicator of a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cimarex Energy currently has a Zacks Rank #3.

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

The combination of Cimarex Energy’s Zacks Rank #3 and +0.88% ESP makes us reasonably optimistic of an earnings beat.

What’s Driving the Better-Than-Expected Earnings?

Cimarex Energy’s asset quality is one of the best among its peers. The Woodford shale wells in its Lone Rock area, the Wolfcamp wells in Texas and the acreage in Eddy County have had outstanding results during the third quarter. These regions are expected to continue producing superior results in the to-be-reported quarter.

Cimarex Energy’s financial flexibility and strong balance sheet are real assets in this period of economic uncertainty. The company has no current debt while long-term debt has been contracting steadily since 2017, reflecting balance sheet strength.

However, Cimarex Energy’s long-term production and reserve growth primarily depend on its acquire-and-exploit model. The company may find it difficult to complete accretive transactions in the future, which could negatively impact growth rate.

Q4 Price Performance

During the quarter, Cimarex Energy’s shares have returned 7.3% compared with the industry’s 9% rally.



Other Stocks to Consider

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat this quarter:

Houston, TX-based EOG Resources EOG is a major independent oil and gas exploration and production company. The company has an Earnings ESP of +4.06% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Continental Resources CLR is an independent oil and natural gas exploration and production company. The company has an Earnings ESP of +0.68% and sports a Zacks Rank #1.

Headquartered in Woodlands, TX, Newfield Exploration NFX is an independent energy company engaged in the exploration and production of crude oil and natural gas. The company has an Earnings ESP of +1.31% and carries a Zacks Rank #3.

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