Can Discounted Permian Crude Drive Delek's (DK) Q3 Earnings?

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Delek US Holdings, Inc.DK is expected to release third-quarter 2018 results after the close of trading on Tuesday, Nov 6. The current Zacks Consensus Estimate for the quarter under review is a profit of $2.06 per share on revenues of $3 billion.

In the preceding three-month period, the Brentwood, TN-based independent refiner, transporter and marketer of petroleum products missed the consensus mark by 9.7due to higher operating expenses.

As far as earnings surprises are concerned, the downstream operator is on a firm footing, having gone past the Zacks Consensus Estimate thrice in the last four reports. This is depicted in the graph below:

Delek US Holdings, Inc. Price and EPS Surprise

Delek US Holdings, Inc. Price and EPS Surprise | Delek US Holdings, Inc. Quote

Investors are keeping their fingers crossed and hoping that the company can continue winning ways by surpassing earnings estimate this time around too. However, our model indicates that Delek might not beat on earnings in the third quarter.

Let's delve deeper and find out the factors impacting the results.

Factors to Consider This Quarter

The 2017 purchase of Alon USA Energy transformed Delek into a Permian-focused diversified downstream energy company with opportunity for cash synergies. Shortage in the Permian takeaway capacity in the face of exponential production growth has led to widening differential, forcing producers to sell their crude at a sharp discount. With 70% of Delek's refining capacity leveraged to lower Permian pricing, the company is poised for significant growth in refining margins. In particular, this is expected to buoy the financial and operational performance of the Refining segment - the main contributor to Delek earnings.

However, Delek's operating expenses are on rise. In the first half of 2018, the company's total operating costs and expenses rose more than 95% from the first-quarter 2017 level. Its profit levels can be hurt if the trend continues.

What Does Our Model Say?

Our proven model too does not conclusively predict that Delek will beat the Zacks Consensus Estimate this quarter. This is because it doesn't have the right combination of the two key ingredients - a positive Earnings ESP and Zacks Rank #3 (Hold) or higher - for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -3.59%.

Zacks Rank: Delek currently has a Zacks Rank of 3, which increases the predictive power of ESP. But we need to have a positive Earnings ESP to be sure of the positive surprise.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Stocks to Consider

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

Cimarex Energy Co. XEC has an Earnings ESP of +2.20% and a Zacks Rank #2 (Buy). The company is anticipated to release earnings on Nov 6. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Helmerich & Payne, Inc. HP has an Earnings ESP of +31.85% and a Zacks Rank #2. The company is expected to release earnings on Nov 16.

Diamond Offshore Drilling, Inc. DO has an Earnings ESP of +7.20% and a Zacks Rank #3. The company is anticipated to release earnings on Nov 5.

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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 Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: DK , HP , DO , XEC

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