Is a Beat Likely for Concho Resources (CXO) in Q3 Earnings?

Zacks Equity Research
·4-min read

Concho Resources Inc. CXO is set to release third-quarter 2020 results after the closing bell on Wednesday, Oct 28. The current Zacks Consensus Estimate for the to-be-reported quarter is $1.14 per share on revenues of $923.4 million.

Let’s delve into the factors that might have influenced the oil and gas producer’s performance in the September quarter. But it’s worth taking a look at Concho Resources’ previous-quarter performance first.

Highlights of Q2 Earnings & Surprise History

In the last-reported quarter, the Midland, TX-based upstream operator beat the consensus mark due to better-than-expected daily production volumes. Concho Resources, which recently entered into an agreement to be acquired by ConocoPhillips COP in an all-stock transaction valued at $9.7 billion, reported net income per share (excluding special items) of $1.13, comprehensively ahead of the Zacks Consensus Estimate of 33 cents. However, the Permian-focused energy company’s quarterly revenues of$474 million came below the Zacks Consensus Estimate of $850 million due to lower commodity price realizations.

As far as earnings surprises are concerned, Concho Resources beat the Zacks Consensus Estimate in two of the last four quarters, met once and missed in the other, delivering an earnings surprise of 67.15%, on average. This is depicted in the graph below:

Concho Resources Inc. Price and EPS Surprise

Concho Resources Inc. Price and EPS Surprise
Concho Resources Inc. Price and EPS Surprise

Concho Resources Inc. price-eps-surprise | Concho Resources Inc. Quote

Trend in Estimate Revision

The Zacks Consensus Estimate for third-quarter bottom line has been revised 2.7% upward in the last seven days. Moreover, the estimated figure indicates 86.9% improvement year over year. The Zacks Consensus Estimate for revenues, meanwhile, suggests a 17.2% decline from the year-ago period.

Factors to Consider This Quarter

Concho Resources is known for its strategic acreage position in the low-cost Permian Basin. The buyout of RSP Permian has bolstered Concho's presence in the region, thereby lifting its output growth prospects with the company expecting the oil production to remain unchanged in 2020 despite lowering capital budget by 40%. This is likely to have aided Concho Resources’ results in the to-be-reported quarter.

The company’s cost-reduction efforts have been encouraging too. For 2020, Concho Resources has trimmed its capital expenditure budget by 40% to $1.6 billion from its original guidance of $2.7 billion after reckoning the ongoing crash in commodity prices. Moreover, for this year, Concho projects its controllable costs to stay below $8.50 per barrels of oil equivalent compared to $9.44 in 2019. This, in turn, is expected to have lifted the company’s earnings and cash flows.

Why a Likely Positive Surprise?

Our proven model predicts an earnings beat for Concho Resources this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Concho Resources has an Earnings ESP of +5.60% and a Zacks Rank #3.

Other Stocks to Consider

Concho Resources is not the only energy company looking up this earnings cycle. Here are some other firms from the space that you may want to consider on the basis of our model:

Antero Midstream Corporation AM has an Earnings ESP of +9.89% and a Zacks Rank #2. The firm is scheduled to release earnings on Oct 28.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Devon Energy Corp. DVN has an Earnings ESP of +23.50% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Oct 29.

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