ConocoPhillips COP, an upstream energy firm, will release fourth-quarter 2015 financial results on Feb 4, before the opening bell.

Last quarter, ConocoPhillips posted a positive earnings surprise of 40.00%. The average earnings surprise for the trailing four quarters is also positive 10.51%. Let’s see how things are shaping up for this announcement.    

Past Quarter Flashback

With leading positions in both natural gas and heavy crude oil in North America, as well as a legacy position in the North Sea and growing exposure to the lucrative international regions, ConocoPhillips expects to replace reserves and sustain production growth over the long term.

However, almost throughout fourth-quarter 2015, West Texas Intermediate (WTI) crude traded significantly below the $50-per-barrel level. In fact, during December, the commodity traded below $40 per barrel. The low levels were owing to plentiful supplies and lackluster demand. Predictably, the company was able to extract less value for its products. This is sure to put pressure on the group’s fourth-quarter profit margins, as it is the most oil-weighted among its peers.  

For the fourth quarter, ConocoPhillips expects production from continuing operation of 1,585−1,625 million barrels of oil equivalent per day (MBOED), higher than 1,540 MBOED in full-year 2014. However, the company reduced its 2015 capital expenditures guidance to $10.2 billion from the earlier guidance of $11.5 billion. The company also lowered the 2015 operating cost guidance to $8.2 billion from $9.2 billion guided earlier.

Overall activities of ConocoPhillips during the fourth quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter to be reported deteriorated to a loss of 61 cents from a loss of 27 cents per share over the last 30 days.

Earnings Whispers

Our proven model does not conclusively show that ConocoPhillips is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.  

Zacks ESP: The Earnings ESP is -4.92%. This is because the Most Accurate estimate is at loss of 64 cents while the Zacks Consensus Estimate is pegged at a loss of 61 cents.  

Zacks Rank: ConocoPhillips has a Zacks Rank #3 (Hold), which increases the predictive power of ESP, but we need to have a positive Earnings ESP to be confident of an earnings beat.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks from the energy space which, according to our model, have the right combination of elements to post an earnings beat this quarter are:

Gulfport Energy Corp. GPOR with an Earnings ESP of +16.67% and a Zacks Rank #2 (Buy).    

CrossAmerica Partners LP CAPL with an Earnings ESP of +15.39% and a Zacks Rank #2.

Magellan Midstream Partners LP MMP with an Earnings ESP of +1.14% and a Zacks Rank #3.

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