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Zack’s Bear of the Day: WPX Energy

The oil industry continues to be under pressure, especially the Exploration and Production segment, as U.S. volumes continue to drive the world oil price down to below $50 a barrel.  This has caused many E&P companies to stop and or reduce drilling due to the fact it is becoming more expensive to drill than the actual barrel it produces.  And unfortunately for Oil companies, this trend is expected to continue into the second quarter 2015.  This is why WPX Energy, Zacks Rank #5 (Strong Sell) is the Zacks Bear of the day.  

WPX Energy (NYSE: WPX) is a natural gas and oil company focused on the exploration and development of unconventional properties.  The company has oil and gas properties particularly in the Piceance Basin, Bakken Shale, and Marcellus Shale.  WPX is based in Tulsa, Oklahoma.  

Oil Catalysts, Negative EPS Price Appreciation, Estimates Declining

The table below shows the historic price and EPS surprise impact.

Over the past 30 days EPS estimates have declined for Q4 14, Q1 15, and FY 15.  Q4 14 declined from -$0.07 to -$0.08, Q1 15 dropped from $0.08 to $0.01, and FY 15 crashed to -$0.02 from $0.18.  The decline in oil prices is the main culprit for the significant negative estimate revisions.  

Previous Earnings

In the third quarter, WPX posted a negative earnings surprise of -150% by missing the Zacks Consensus Earnings by $0.06.  The company did beat the Zacks Consensus Revenue Estimate, but the declining oil prices have caused concern that expected revenues of $699 million will be difficult to meet or beat in Q4 14.

Bottom Line

With oil prices remaining below $50 a barrel, most if not all E&P companies are under significant pressure to reduce cost, and possibly restrict or slow down total drilling.  This segment should be under pressure out to the second quarter 2015.

Other Stocks to Consider

If you are inclined to invest in the Oil-E&P segment, you may want to consider Forest Oil (FST), Midstates Petro (NYSE: MPO), or Swift Energy (NYSE: SFY), all carrying a Zacks Rank #2 (Buy). 

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