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Key Factors Likely to Shape Archrock's (AROC) Q4 Earnings

Archrock, Inc. AROC is scheduled to release fourth-quarter 2018 results before the opening bell on Wednesday, Feb 20. The current Zacks Consensus Estimate for the quarter under review is a profit of 8 cents per share on revenues of $232.2 million.

In the preceding three-month period, the Houston, TX-based natural gas compression services provider beat the consensus mark by 33.3% on robust customer demand and solid execution.

As far as earnings surprises are concerned, the energy infrastructure company has a good record, having gone past the Zacks Consensus Estimate thrice in the last four reports. This is depicted in the graph below:

Archrock, Inc. Price and EPS Surprise


Archrock, Inc. Price and EPS Surprise | Archrock, Inc. Quote

Investors are keeping their fingers crossed and hoping that the company can surpass earnings estimate this time around.

Let’s delve deeper and find out the factors impacting the results.

Factors to Consider This Quarter

Archrock’s business is centered around its Contract Operations unit. Mainly involved in providing broad spectrum of natural gas compression services to its customers, the segment makes up around 90% of the company’s gross margins and is seen as a source of stable cash flow. Archrock’s largest unit enters into long-term, fee-based contracts with top notch energy companies. The fundamentals of the compression business – an integral service for gas transportation – remain strong due to the soaring North American natural gas production and export. This should support the trend of growing horsepower utilization and pricing, driving the results of the Contract Operations segment.    

The company’s smaller Aftermarket Services business – primarily focused on the companies that owns their compression – is also expected to perform well on the back of better market dynamics, pricing strength and Archrock’s operational efficiency.

However, Archrock’s capital expenditures and debt are on rise. In the third quarter of 2018, the company’s capital outlay more than doubled, while total consolidated debt was up by nearly 9% over the same period. The company’s profit levels can be hurt if the trend continues.

What Does Our Model Say?

Our proven model too does not conclusively predict that Archrock will beat the Zacks Consensus Estimate this quarter. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing 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.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -34.78%.

Zacks Rank: Archrock currently has a Zacks Rank of 3, which increases the predictive power of ESP. But we need to have a positive Earnings ESP to be sure of the positive surprise.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Stocks to Consider

While earnings beat looks uncertain for Archrock, here are some firms from the energy space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this quarter:

Sunoco LP SUN has an Earnings ESP of +26.89% and a Zacks Rank #2 (Buy). The partnership is slated to release earnings on Feb 20. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

C&J Energy Services, Inc. CJ has an Earnings ESP of +26.26% and a Zacks Rank #3. The company is slated to release earnings on Feb 21.

Concho Resources Inc. CXO has an Earnings ESP of +8.18% and a Zacks Rank #3. The company is slated to release earnings on Feb 19.

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