Will Low Rig Use Mar Hercules Offshore (HERO) Q1 Earnings? - Analyst Blog

In the preceding three-month period, Houston, TX-based firm delivered a positive earnings surprise of 34.3% despite the challenging environment posed by the steep drop in oil prices throughout the quarter. This is primarily owing to strong cost control measures.

Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

The current oil price plunge – with crude tumbling more than 50% over eight months – provide the latest threat to the offshore drilling fraternity that is already facing a bleak industry outlook.

As the commodity enters into a bearish territory and stays around the $50-a-barrel level, the top energy companies have cut spending (particularly on the costly drilling projects) given lower profit margins. This, in turn, means less work for the beleaguered drillers (like Hercules Offshore) that are facing an uphill battle to turn around.

In fact, the poor industry conditions (or operator spending cutbacks) continue to weaken both utilization and dayrates. To make things worse, a soft international drilling market have led to weak tendering levels and lack of newbuild contracts, especially in Asis/Middle East. 

Earnings Whispers

Our proven model does not conclusively show that Hercules Offshore is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: Earnings ESP which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -16.22%. The Most Accurate estimate for Hercules Offshore stands at a loss of 43 cents while the Zacks Consensus Estimate is pegged narrower at a loss of 37 cents.

Zacks Rank: Hercules Offshore carries a Zacks Rank #5 (Strong Sell), which further complicates the forecasting power of ESP. 

As it is, we caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

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

Marathon Petroleum Corp. MPC has an Earnings ESP of +1.77% and a Zacks Rank #1 (Strong Buy). The company is slated to release earnings on Apr 30.

Whiting Petroleum Corp. WLL has an Earnings ESP of +6.90% and a Zacks Rank #2 (Buy). The company is slated to release earnings on Apr 29.

Suncor Energy Inc. SU has an Earnings ESP of +400.00% and a Zacks Rank #2. The company is slated to release earnings on Apr 29.