CHICAGO, July 17, 2014 /PRNewswire/ -- Zacks Equity Research highlights Caterpillar (NYSE: CAT-Free Report) as the Bull of the Day and Bridgepoint Education (NYSE: BPI-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Clayton Williams Energy Inc. (NYSE: CWEI-Free Report), Noble Energy Inc. (NYSE: NBL-Free Report) and Encana Corporation (NYSE: ECA-Free Report).
Here is a synopsis of all five stocks:
Caterpillar (NYSE: CAT-Free Report)has had a rough stretch for a while and was actually a favorite candidate for the 'Bear of the Day' for much of last year. However, as industrial production has come back a bit and as emerging markets have stabilized, CAT has become an intriguing play in 2014.
In fact, shares of CAT have added over 22% YTD, easily crushing the S&P 500 and its return over the same time period. Still, when taking a two year look, CAT is behind the broad benchmark and has quite a bit of territory left to cover in order to make up the difference. But with recent earnings estimate activity and hope for a strong earnings number, CAT may very well close the gap in short order.
Analysts seem to believe that CAT is back on track, as there have been many earnings estimates moving higher as of late for this stock. The current year and the next year are the real movers though, as both of these have seen strong estimate revisions in the past week, including three estimates moving higher in just the past seven days for the next year time frame.
Thanks to these moves higher, CAT is closing in on expectations of 7% EPS growth for 2014, when compared to the year ago period. However, the true focus should be on next year, as CAT is now expected to see growth of nearly 15% year-over-year for earnings.
While higher expectations are always troubling, it is important to note that CAT has turned things around on this front and is now on a two quarter streak for beating earnings estimates. Both of the last two quarters saw earnings beats in double digit territory, and the Earnings ESP for the current quarter is also positive, suggesting another beat might be on the way (at least when this is coupled with a positive/neutral Zacks Rank).
Although it is the height of summer vacation for many students, education stocks have managed to receive falling grades nonetheless. Several names in the sector have come under investigation by the Department of Education over financial aid issues, and worries are spreading across the space that more pain could be ahead.
While this trend has impacted a number of stocks in this space, an overlooked one that could be poised for a further slide is undoubtedly Bridgepoint Education (NYSE: BPI-Free Report). This San Diego-based for-profit education company has lost about one-fourth of its value since the start of the year, and based on the recent industry trends and earnings estimates for BPI, there could definitely be more losses ahead for this stock.
Bridgepoint is best known for its brands of Ashford University and University of the Rockies, providing a variety of degrees in numerous fields to students. The majority of its programs are online, though it does have two campuses as well.
Much like other education stocks, this was a booming business for a while, but heavy competition and regulatory scrutiny are dulling the appeal of many names in this sector now. BPI has been unable to escape this trend, while analysts appear very bearish on the company's near term prospects too.
BPI has a horrible track record when it comes to earnings season, as it hasn't been able to beat, or even come close, to estimates as of late. In fact, all of its reports in the past year had misses greater than 25%, showcasing how difficult it has been for BPI to beat earnings estimates.
3 Oil & Gas E&Ps for Q2 Earnings Beats
The prospects of the energy industry, the Exploration and Production (E&P) sector in particular, are largely tied to the related commodities. The oil/natural gas-focused stocks thus stand to benefit from the recent momentum in their prices.
During the last few months, crude prices have mostly traded over $100 per barrel range. Most importantly, in June, the West Texas Intermediate (WTI) crude crossed the $106 threshold for the first time since Sep 2013, as tensions over Iraq continued to feed supply concerns in the Middle East. (Read our full coverage on the Iraq turmoil: Crude Rallies on Iraq Conflict: Oil Stocks in Focus)
Meanwhile, natural gas price also showed improvement. After hovering near the $3.5 per million British thermal unit level for most of 2013, natural gas traded over the $4.5 threshold during the entire second quarter. A markedly lower natural gas inventory level – less than the 5-year average underground storage level as per the Energy Information Administration (EIA) – during the last three months aided the price rise. Also, increased natural gas consumption for electricity generation acted as a catalyst.
The healthy pricing environment will allow the E&P companies to extract more value for their products. We are now in the initial days of the Q2 earnings season and the sector is most likely to offer good investment opportunities with the upcoming releases.
Picking the Right Stocks
With a wide array of companies in the sector muddling up the stock picking power, the Zacks methodology could offer some relief. One could narrow down the list using positive Zacks Earnings ESP as a guide, along with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Here are three E&P stocks that are poised to beat estimates according to our methodology:
Clayton Williams Energy Inc. (NYSE: CWEI-Free Report): Midland, TX-based Clayton Williams Energy is primarily involved in E&P of oil and natural gas resources located in Texas, Louisiana, and New Mexico. The company's total proved reserve as of Dec 31, 2013, was roughly 70 million barrels of oil equivalent (MMBOE).
The company has an earnings ESP of +4.97% and a Zacks Rank #1. The Zacks Consensus Estimate for the to-be-reported is pegged at $1.41 per share.
Clayton Williams Energy is set to report its second quarter results on Jul 24, before the opening bell.
Noble Energy Inc. (NYSE: NBL-Free Report): Headquartered in Houston, TX, Noble Energy is an oil and gas E&P company, engaged in the upstream operations globally. The total proved reserve of the company as of Dec 31, 2013 was 1,406 MMBOE.
Noble Energy's second quarter prospect looks bright as it has an earnings ESP of + 1.28% and a Zacks Rank #3. The Zacks Consensus Estimate is 78 cents per share.
The company is set to report its second-quarter results on Jul 24, before the opening bell.
Encana Corporation (NYSE: ECA-Free Report): Calgary, Alberta based Encana is a focused pure-play natural gas E&P company. It is the second largest gas producer in North America, and holds a highly competitive land and resource position in a number of the region's most promising shale and tight gas resource plays. This provides the company with a low risk, long-life, and sustainable growth profile. As of year-end 2013, Encana had 10.0 trillion cubic feet equivalent in proved reserves, of which roughly 86% was natural gas.
For the upcoming release, Encana has an earnings ESP of + 11.11% and a Zacks Rank #3.
Encana – which has a Zacks Consensus Estimate of 27 cents for the second quarter – will release its results on Jul 24, prior to the opening bell.
Although the oil and natural gas E&P companies are exposed to volatile commodity prices, we can say that the firms involved in upstream operations have a high chance of coming up with flying second quarter earnings.
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