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Phillips 66 (PSX) Q4 Earnings: A Surprise in the Cards?

Phillips 66PSX is expected to report fourth-quarter 2016 earnings on Feb 3, before the market opens.

In the last reported quarter, the company's earnings of $1.05 per share handily beat the Zacks Consensus Estimate of 89 cents. The bottom line, however, was below the year-ago quarter level of $3.02 per share. Investors should note that the company outpaced the Zacks Consensus Estimate in three of the last four quarters.

Let's see how things are shaping up prior to the announcement.

Phillips 66 Price and EPS Surprise

Phillips 66 Price and EPS Surprise | Phillips 66 Quote

Factors Likely to Influence Earnings

We are optimistic about Phillips 66's geographically diversified refinery base. The company's 14 refineries enable it to participate in various market opportunities and provide an advantage over region-specific competitors. Further, most of Phillips 66's refineries are integrated with transportation, marketing and commercial operations that provide crude supply flexibility. These refineries boast strong margins because of low feedstock costs, courtesy of more onshore crude sources that offer a distinct cost advantage over seaborne crudes. Phillips 66 also owns or has interests in three refineries in Europe and one in Asia. These positives have helped the company make substantial profits in the past and we expect the trend to continue in the soon-to-be-reported quarter as well.

Also, the aforesaid factors have enabled the company to pay attractive dividends since its spin-off from ConocoPhillips COP on May 2012. We expect the company to continue increasing dividends in the long run, which in turn, should further cement investor confidence on the stock.

However, Phillips 66's chemicals business operates in a highly volatile industry, wherein sales prices always fluctuate. As a result, the company's profitability in such a sector is not always guaranteed.

Low oil prices have resulted in declining production due to spending cuts by most of the oil majors. This in turn could slow midstream investments and growth outlook and adversely affect Phillips 66's operations.

Earnings Whispers

Our proven model does not conclusively show that Phillips 66 is likely to 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) for this to happen. 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 both the Most Accurate estimate and the Zacks Consensus Estimate for the company stand at 38 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : Phillips 66 carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, an Earnings ESP of 0.00% makes surprise prediction difficult.

Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Though an earnings beat looks uncertain for Phillips 66, here are some firms that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat this quarter:

Cimarex Energy Co. XEC has an Earnings ESP of +1.72% and a Zacks Rank #3. The company is expected to release earnings results on Feb 15. You can see the complete list of today's Zacks #1 Rank stocks here .

SM Energy Company SM has an Earnings ESP of +9.52% and a Zacks Rank #3. The company is expected to release earnings results on Feb 28.

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Phillips 66 (PSX): 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 Nasdaq, Inc.


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

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