Newfield Exploration (NFX) Q2 Earnings: What's in Store? - Analyst Blog

Newfield Exploration Co. NFX is set to release second-quarter 2015 financial results after the closing bell on Aug 4.

Last quarter, the company’s earnings of 3 cents per share decreased 93.2% from 44 cents earned in the year-ago quarter. The results also came in below the Zacks Consensus Estimate of 10 cents. Let’s see how things are shaping up for this announcement.

Earnings Whispers

Our proven model shows that Newfield is likely to beat earnings because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 5.56%.This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Newfield currently has a Zacks Rank #3 (Hold), which when combined with a 5.56% ESP, makes us confident about an earnings beat.  
 
However, we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Likely to Affect Earnings
 
Newfield’s new STACK and SCCOP plays in the Anadarko basin form important parts of its portfolio. Production in STACK and SCCOP plays are expected to increase year over year by more than 40% in 2015. Currently, the company has more than 10 rigs operating in the Anadarko Basin. Newfield Exploration has a net acreage of 300,000 in the basin. It is expected to further add acreage in its STACK play and drill over 50 STACK wells in 2015. The company also expects SCOOP wells costs to lower to an average of $8.9 million (from $9–$13 million), while STACK well costs are estimated at about $8.5 million (from $9–12 million). These cost-containment measures will increase efficiency and enhance profitability during the to-be-reported quarter.

Newfield Exploration’s exposure to emerging resource plays, along with its shift of resources from natural gas to liquids, is expected to help it grow in the E&P space. The company's Williston Basin program is in the developmental phase and average well costs are projected to decrease about 15–20% from the 2014 averages. Further, horizontal drilling in the Wasatch and high-pressure Uteland Butte are expected to help the company enhance shareholders’ value.

However, Newfield’s Rockies and Gulf Coast-centered asset portfolio, along with its lack of meaningful exposure to emerging shale plays, is a competitive disadvantage.

Though we remain positive on Newfield Exploration’s emerging resource play development program, we believe that a low natural gas price environment could weigh on the company’s results since most of its reserves are tied up in natural gas. Specifically, oil and gas prices have been increasingly volatile in recent years. This volatility tends to impact sector stock performance.

Stocks to Consider
 
Here are some companies from the same space which, according to our model, have the right combination of elements to post an earnings beat this quarter.

Marathon Petroleum Corporation MPC has Earnings ESP of +1.12% and a Zacks Rank #2 (Buy).

Suncor Energy Inc. SU has an Earnings ESP of +25.00% and a Zacks Rank #3.

Cenovus Energy Inc. CVE has an Earnings ESP of +60.00% and a Zacks Rank #3.

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NEWFIELD EXPL (NFX): Free Stock Analysis Report
 
SUNCOR ENERGY (SU): Free Stock Analysis Report
 
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