3 Oil Sector Earnings Bets - Earnings ESP

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3 Oil Sector Earnings Bets

Stocks in the refining industry look pretty good ahead of the fourth quarter results. This optimism can be traced back to the 'Brent-WTI' oil spread that is at a level which refiners find satisfactory. Refiners are buyers of the cheaper WTI, while they sell their products on the more lucrative Brent.

While Brent hovered around the $110 per barrel mark for most of the Oct-Dec period, WTI was quite volatile. However, for the major part of the fourth quarter, it stayed close to the $95 per barrel level. This means that the refiners got around $15 per barrel margin, which should be a significant contributor in the upcoming earnings releases. 

Also, the 'oil refining and marketing' industry sports a Zacks Industry Rank #14, comfortably placing it into the top 1/3rd of the 260+ Zacks industry groups. This is again favorable for the refining stocks, as often a strong industry will have a positive impact on all its constituents.

Choosing the Best of the Lot

Picking right stocks from an entire industry could be a herculean task. To make things easier, one can consider the combination of a positive Zacks Earnings ESP and a favorable Zacks Rank - Zacks Rank #1 (Strong Buy) or #2 (Buy) or #3 (Hold). Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Here we have found three stocks that match this criterion, so they are poised to beat earnings estimates this announcement. These stocks - each with a Zacks Rank #2 - have also witnessed solid estimate revisions over the past few weeks. Moreover, each of these stocks has rallied over 15% in the last three months.

Marathon Petroleum Corporation ( MPC ) has an Earnings ESP of +3.5%. In the last 60 days, 10 estimates moved up for Marathon, while only 1 moved down for the fourth quarter. The estimate is currently pegged at $1.14, up 93.0% in the same time frame. Similarly, full-year estimates saw 8 upward revisions against just 1 downward movement in the past 60 days. The estimate stands at $5.89, up 10.1% in the same time frame.

Findlay, Ohio-based Marathon is a leading independent refiner, transporter and marketer of petroleum products that operates through three segments: Refining and Marketing, Speedway (Retail), and Pipeline Transportation.

The company is slated to release its fourth quarter and full year 2013 results on Jan 29.

Valero Energy Corporation ( VLO ) has an Earnings ESP of +12.5%. In the past 60 days, 11 estimates moved up for Valero, while only 1 moved down for the to-be reported quarter. The quarter's estimate is pegged at 88 cents, up 69.2% in the same time frame. A similar trend can be observed in full year estimates with 7 estimates moving up against only one downward revision in the past 60 days. The full year estimate is $3.53, up 7.6% in the same time frame.

Valero offers the most diversified refinery base with a capacity of 3.0 million barrels per day in its 16 refineries throughout the U.S., Canada and the Caribbean.

The company is expected to release its fourth quarter and full year 2013 results on Jan 29.

Alon USA Energy, Inc. ( ALJ ) has an Earnings ESP of +37.5%. In the past 60 days, 3 estimates moved up for Alon, while 2 moved down for the fourth quarter. The quarter's estimate is pegged at a loss of 16 cents, narrowed 23.8% in the same time frame. For the full year, 1 estimate moved up while none moved lower in the past 60 days. The full year estimate is currently pegged at 37 cents.

Headquartered in Dallas, Texas Alon is an independent refiner and marketer of petroleum products. The company operates in three segments, Refining and Marketing, Asphalt, and Retail. The company is expected to release its quarter results in Mar 2014.  


ALON USA ENERGY (ALJ): Free Stock Analysis Report

MARATHON PETROL (MPC): Free Stock Analysis Report

VALERO ENERGY (VLO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Earnings

Referenced Stocks: ALJ , MPC , VLO

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