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Cost Containment to Aid QEP Resources' (QEP) Q2 Earnings

QEP Resources, Inc. QEP is set to release second-quarter 2020 results after the closing bell on Wednesday, July 29. The current Zacks Consensus Estimate for the to-be-reported quarter is a loss of 2 cents per share on revenues of $213.7 million.

Let’s delve into the factors that might have influenced the upstream operator’s performance in the June quarter. But it’s worth taking a look at QEP Resources’ previous quarter performance first.

Highlights of Q1 Earnings & Surprise History

In the last reported quarter, the Denver, CO-based independent energy company beat the consensus mark on the back of higher output at the Permian play. QEP Resources reported adjusted net income per share of 21 cents that surpassed the Zacks Consensus Estimate by 19 cents. However, the company’s quarterly revenues of $225.8 million lagged the Zacks Consensus Estimate of $270 million due to weak commodity price realizations.

As far as earnings surprises are concerned, QEP Resources surpassed the Zacks Consensus Estimate on one occasion, missed in two and reported in line in another quarter, the average positive surprise being 112.50%. This is depicted in the graph below:
 

QEP Resources, Inc. Price and EPS Surprise

QEP Resources, Inc. price-eps-surprise | QEP Resources, Inc. Quote

Trend in Estimate Revision

The Zacks Consensus Estimate for first quarter earnings per share has been revised 200% downward in the last 7 days. However, the estimated figure indicates a 50% improvement from the year-ago reported earnings. Meanwhile, the Zacks Consensus Estimate for revenues suggests a 27.8% decrease from the prior-year reported figure of $296.2 million.

Factors to Consider This Quarter

Oil prices recently fell to historic lows due to the coronavirus-induced demand destruction amid the fuel’s ample supply. In conjunction with the crude collapse, QEP Resources stock has been sold off together with a host of other energy sector names. Worryingly, the oil plunge has left the likes of QEP Resources facing prices below or close to their costs of production.

However, as a counter to the bearish macro environment, the company maintains a very competitive cost structure, which contributes to the consistency of its growth and returns throughout the business cycle. Notably, the firm's total operating expenses in the first quarter decreased significantly to $236.7 million from $283.2 million a year ago. Moreover, QEP Resources’ first-quarter lease operating expenses came in at $40.2 million, down 22% from the same quarter last year, while general and administrative costs fell 7% year over year. The robust well economics along with cost and capital discipline is likely to have improved its profit levels, in the second quarter as well.

Further. QEP Resources’ cash outflows as capital expenditure continue to fall as the firm reigns in its spending levels. The company is also pushing for reduction in overhead and other costs, while realizing sizeable savings from halting the dividend. All this is expected to have pushed QEP Resources’ second quarter earnings and cash flows higher.

Why a Likely Positive Surprise?

Our proven model predicts an earnings beat for QEP 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.

QEP Resources has an Earnings ESP of +136% and a Zacks Rank #3.

Other Stocks to Consider

QEP Resources is not the only energy company looking up this earnings cycle. Here are some other firms from the 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 season:

Crescent Point Energy Corp. CPG has an Earnings ESP of +12.50% and a Zacks Rank #2. The company is scheduled to release earnings on Jul 30.

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

Magellan Midstream Partners, L.P. MMP has an Earnings ESP of +2.89% and is Zacks #3 Ranked. The company is scheduled to release earnings on Jul 30.

Enbridge Inc. ENB has an Earnings ESP of +0.98% and is Zacks #3 Ranked. The company is scheduled to release earnings on Jul 29.

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Magellan Midstream Partners, L.P. (MMP): Free Stock Analysis Report
 
QEP Resources, Inc. (QEP): Free Stock Analysis Report
 
Crescent Point Energy Corporation (CPG): Free Stock Analysis Report
 
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