Here's Why A High EPS Report From Chevron Could Still Be Problematic

| About: Chevron Corporation (CVX)

Chevron Corp. (NYSE:CVX) is set to report FQ1 2014 earnings before the market opens on Friday, May 2nd. Chevron is one of the biggest names in oil and energy. Energy and utility stocks have been the leaders so far in 2014. Chevron stock opened the year with a nasty selloff but has since rebounded to start of 2014 prices. The Estimize community has high expectations for the energy companies on the bottom line this period, but revenue forecasts are generally coming in well below the Street's this quarter. Thursday morning the Estimize community accurately predicted that fellow energy giant Exxon Mobil (NYSE:XOM) would beat EPS estimates by a wide margin but come up way short on revenue. Contributing analysts on the platform are expecting a similar story from Chevron on Friday.

The information below is derived from data submitted to the platform by a set of Buy Side and Independent analyst contributors.

(Click Here to see Estimates and Interactive Features for Chevron)

The current Wall Street consensus expectation is for Chevron to report $2.53 EPS and $66.445B revenue, while the current consensus from 19 Buy Side and Independent contributing analysts is $2.68 EPS and $61.695B in revenue. This quarter the buy-side as represented by the community is expecting Chevron to both beat Wall Street's EPS projections and miss the Street's revenue estimates by a wide margin.

Over the past 6 quarters, the consensus from has been more accurate than Wall Street in forecasting Chevron's EPS and revenue 3 and 5 times respectively. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non-professional investors, Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we are seeing a wider than usual difference of estimates between Estimize and Wall Street.

The distribution of estimates published by analysts on the platform range from $2.52 to $3.11 EPS and from $55.000B to $67.230B in revenues. This quarter we're seeing a wide range of estimates on Chevron.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of EPS estimates signals less agreement in the market, which could mean greater volatility post earnings.

Throughout the quarter, Wall Street lowered its EPS consensus for Chevron from $2.94 to $2.53, while the Estimize consensus fell from $3.07 to $2.68. Meanwhile, the Wall Street revenue consensus rose before the report from a low of $59.522B to $66.445B, while the Estimize consensus also popped up at the end of the period from $59.332B to $61.695B. Timeliness is correlated with accuracy and often a leading indicator, for Chevron this quarter we see falling EPS estimates and rising revenue expectations from both groups going in to the report.

The analyst with the highest estimate confidence rating this quarter is turbinecity, who projects $2.57 EPS and $66.846B in revenue. turbinecity was our Winter 2014 season winner and is ranked 3rd overall among over 4,350 contributing analysts. Over the past 2 years turbinecity has been more accurate than Wall Street in forecasting EPS and revenue 59% and 54% of the time respectively throughout over 2000 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research, which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, turbinecity is one of very few analysts on the Estimize platform expecting Chevron to beat revenue estimates this quarter.

The Estimize community expects Chevron to follow suit with Exxon Mobil on Friday by reporting higher earnings than expected while coming up short on revenue. Unfortunately for Exxon Mobil shares were trading down midday on Thursday as the oil stocks tend to trade on oil production and increasing revenue rather than the number on the bottom line.

Disclosure: None

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Tagged: , Major Integrated Oil & Gas, Earnings
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