Will Southwestern Energy (SWN) Disappoint in Q4 Earnings?

Southwestern Energy Company SWN is set to report fourth-quarter 2017 results on Mar 2.

Last quarter, the company delivered earnings of 6 cents per share which lagged the Zacks Consensus Estimate of 7 cents. However, the bottom line improved from 3 cents in the year-ago quarter. In the trailing three months, the company reported a negative earnings surprise of 14.3%. The company lagged the Zacks Consensus Estimate in three of the previous four quarters, the average negative earnings surprise being 22.9%.  
 

Southwestern Energy Company Price and EPS Surprise

 

Southwestern Energy Company Price and EPS Surprise | Southwestern Energy Company Quote

 

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

Which Way Are Estimates Trending?

Let’s 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 9 cents for the fourth quarter has seen no upward but seven downward revisions by firms in the last 30 days. It reflects year-over-year growth of about 12.5%.

Further, analysts polled by Zacks expect revenues of $798 million in the upcoming results, reflecting an improvement of 16.7% from the year-ago quarter.

Factors to Consider

Per the Zacks Consensus Estimate, Southwestern Energy’s production for the current quarter is pegged at 239 billion cubic feet equivalent (Bcfe), reflecting a rise from 232Bcfe in the preceding quarter and 202 Bcfe in the year-ago quarter.

The Zacks Consensus Estimate for oil production is 748 thousand barrels (Mbbls), showing an improvement from663 Mbbls in the preceding quarter and 463 Mbbls in the prior-year quarter.

Analysts polled by Zacks expect gas production of 211 thousand cubic feet (mcf), which shows an increase from 205 mcf in the preceding quarter and 183 mcf in the year-ago quarter.

The Zacks Consensus Estimate for average realized price of oil (including hedging) is $45.68 per barrel, showing an increase from $40.49 in the preceding quarter and$41.18 in the year-ago quarter.

Analysts polled by Zacks expect average realized natural gas price to rise 10.2% from the preceding quarter and 4.8% annually to $2.17 per mcf.

Analysts polled by Zacks expect average realized natural gas liquids price to rise 4.8% from the preceding quarter and 25.5% year over year to $15.16 per barrel. The upside in the oil and gas prices will benefit upstream players like Southwestern Energy.

However, Southwestern Energy’s high-debt level raises concerns. It had a debt equity ratio of 266.1%, while the broader industry average was 96.2%. The company’s high leverage is a cause of concern.

Moreover, Southwestern Energy lacks a diversified asset base. Additionally, the increased spending by the company remains a drag on the balance sheet and risks the company’s creditability.  

Earnings Whispers

Our proven model does not show that the independent energy firm is likely to beat earnings this quarter. That 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:Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -2.41%. This is because the Most Accurate estimate is 8 cents, while the Zacks Consensus Estimate is pegged at 9 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 #4 (Sell).

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into an earnings announcement.

Q4 Price Performance

During the quarter, Southwestern Energy’s shares declined 8.6% against the industry’s 9.1% gain.    

 

Stocks to Consider

Here are some firms that you may want to consider on the basis of our model. These have the right combination of elements to beat earnings this quarter.

EnergenCorporation EGN is an independent oil and gas exploration and production company. The company has an Earnings ESP of +3.72% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

ProPetro Holding PUMP is an oilfield service provider. The company has an Earnings ESP of +13.16% and a Zacks Rank #2.

Headquartered in Bristol, US, Contura Energy CNTE supplies metallurgical and thermal coal to generate power. The company has an Earnings ESP of +31.93% and a Zacks Rank #1.

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Southwestern Energy Company (SWN) : Free Stock Analysis Report
 
Energen Corporation (EGN) : Free Stock Analysis Report
 
CONTURA ENERGY (CNTE) : Free Stock Analysis Report
 
ProPetro Holding Corp. (PUMP) : Free Stock Analysis Report
 
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