Independent oil refiner and marketer Marathon Petroleum Corp.MPC is set to release its third-quarter 2016 results before the opening bell on Thursday, Oct 27.
In the preceding three-month period, the Findlay, OH-based downstream operator delivered a positive earnings surprise of 12.63% owing to improved merchandise margins and contribution from new and existing pipeline.
Coming to earnings surprise history, the company has a mixed record: its missed estimates in 2 of the last four quarters, resulting in an average negative surprise of 9.10%.
MARATHON PETROL Price and EPS Surprise
Let's see how things are shaping up for this announcement.
Factors to Consider This Quarter
U.S. refiners have been struggling this year with the existing stocks of refined product inventories - gasoline and distillate - remaining at their maximum seasonal levels in at least 20 years despite healthy demand. Consequently, margins have narrowed forcing some of the operators to announce production cuts, postpone capital spending and retrench employees. No doubt, Marathon Petroleum has a terrible industry rank - in the bottom 38% overall.
However, the company's earnings are likely to benefit from lower direct operating costs driven by the drop in purchased energy expenses. Secondly, Marathon Petroleum's 'Speedway' (convenience stores) unit is primed for another strong quarter as lower gasoline prices continued to drive demand amid cost-cutting measures. And finally, the 'Pipeline Transportation' segment - with its stable fee-based income - will provide much needed support to the first quarter results.
Our proven model does not conclusively show that Marathon Petroleum will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate both stand at 77 cents.
Zacks Rank: Marathon Petroleum has a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company's ESP of 0.00% makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
While earnings beat looks uncertain for Marathon Petroleum, 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:
CONE Midstream Partners L.P. CNNX has an Earnings ESP of +2.7% and a Zacks Rank #1. The partnership is expected to release earnings results on Nov 4. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
NuStar Energy L.P. NS has an Earnings ESP of +6.25% and a Zacks Rank #2. The partnership is anticipated to release earnings on Nov 2.
Comstock Resources Inc. CRK has an Earnings ESP of +3.74% and a Zacks Rank #2. The company is likely to release earnings on Nov 8.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>