Will MRC Global (MRC) Beat Q3 Earnings on Inorganic Growth? - Analyst Blog
MRC Global Inc. ( MRC ), the prominent input distributor of the energy industry, is scheduled to report third-quarter results after the closing bell on Nov 6. The company had generated in-line results in the preceding quarter. Let's see how things are shaping up prior to the upcoming earnings publication.
Factors to Influence Q3 Results
In 2014, MRC Global has won several prospective contracts within its business domains. In the upcoming five years, these deals are estimated to yield $700 million in revenues. The company has taken concerted attempts to diversify its services and globalize business in the recent times.
Such attempts, in the form of new acquisitions, aim to generate greater profitability in business. The company is also strategically lowering its cost margins through specialized cost-reduction programs such as the voluntary retirement plan.
However, MRC Global's potential customer base remains highly concentrated in nature. A slight change in the preference pattern of these buyers might drastically lower the revenue margin of the company. Even so, the organization does not share prospective relationships with its suppliers and hence might be subjected to input price fluctuations.
Furthermore, geopolitical tensions and exchange rate fluctuations often limit the benefits of its acquisition-based internationalization process. Divestiture of MRC Global's progressive cavity pump distribution and servicing business to Europump is expected to adversely affect its Canadian business.
Despite facing several headwinds, MRC Global has revised its third-quarter revenue projections upwards, aiming to effectively improve its business through both organic and inorganic growth.
However, our proven model does not conclusively show that MRC Global is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here as we will see below.
Zero Zacks ESP: Earnings ESP for the stock, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate for the stock stand at 45 cents per share, indicating in-line earnings.
Zacks Rank #4 (Sell): MRC Global currently possesses a Zacks Rank #4, which when combined with a 0.00% ESP, makes surprise predictions difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum. Note that stocks with a Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings.
Other Stocks to Consider
Here are some companies in the industry that shareholders may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Ocean Rig UDW Inc. ( ORIG ) with an Earnings ESP of +11.59% and a Zacks Rank #2.
Oil States International Inc. ( OIS ) with an Earnings ESP of +1.00% and a Zacks Rank #3.
Ensco plc ( ESV ) with an Earnings ESP of +0.67% and a Zacks Rank #3.
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