Leading distributor of pipes, valves and fittings, MRC Global Inc. (MRC) is scheduled to release the fourth-quarter 2013 results after the market closes on Feb 20. In the last quarter, it delivered a negative earnings surprise of 9.09%. Let’s see how things are shaping up for the company prior to the announcement.
Factors to Consider
MRC Global’s revenue generation in third-quarter 2013 was affected by a planned reduction in the oil country tubular goods (OCTG) business. Revenues dropped 9.5% year over year to $1,313.7 million, while adjusted earnings per share of 40 cents for the quarter lagged the year-ago earnings by 34.4%. The company’s dependence on a handful of customers can prove detrimental to revenues if the spending pattern of these customers changes.
Foreign currency transactions had a negative impact on MRC Global. It is apprehended that this risk will continue to hover around the company’s financials as it penetrates further into foreign markets.
Earnings Whispers
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 #1, 2 or 3 for this to happen. That is not the case here as we see below.
Zacks ESP: MRC Global’s Most Accurate estimate stands at 40 cents, while the Zacks Consensus is pegged slightly higher at 43 cents. Hence, the Earnings ESP is -6.98%.
Zacks Rank: MRC Global has a Zacks Rank #4 (Sell) which lowers the predictive power of ESP because the Zacks Rank #4 when combined with a negative ESP makes surprise prediction 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 negative estimate revisions momentum.
MRC Global witnessed downward movement of estimates in the past 30 and 60 days for the upcoming quarter as well as for 2013.
Other Stocks to Consider
Here are some other companies in the industry that you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:
Power Solutions International, Inc. (PSIX), Earnings ESP of +5.00% and a Zacks Rank #3 (Hold).
Horsehead Holding Corp. (ZINC),Earnings ESP of +71.43% and a Zacks Rank #3.
Honeywell International Inc. (HON), Earnings ESP of +0.79% and a Zacks Rank #3.
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