We expect independent refiner Tesoro Corporation (TSO) to beat expectations when it reports fourth-quarter 2014results on Feb 11, after the closing bell. Last quarter, the company delivered a positive earnings surprise of 42.33%. Moreover, for the last four quarters, the company’s average positive surprise was 7.65%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Tesoro is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.35%. This is meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Tesoro carries a Zacks Rank #2 (Buy), which when combined with +1.35% ESP, makes us confident of an earnings beat.
The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-Than-Expected Earnings?
Tesoro − one the largest independent oil refiners in the U.S. − generates majority earnings by selling refined petroleum products that it produces by processing raw crude. Hence, the company’s business is negatively correlated with crude price – the input cost.
During the entire fourth-quarter 2014, the pricing environment of crude was weak. This was owing to plentiful supply of the commodity and lackluster global demand.
We can say that the business scenario during the entire quarter was favorable for the company as the input cost was significantly down.
Other Stocks to Consider
Apart from Tesoro, other stocks in the energy sector with a positive Earnings ESP and a favorable Zacks Rank include:
JinkoSolar Holding Co Ltd. (JKS) with an Earnings ESP of +11.11% and a Zacks Rank #2 (Buy). The company will likely release earnings on Mar 2.
LRR Energy L.P (LRE) with an Earnings ESP of +3.13% and a Zacks Rank #2. The partnership is expected to release earnings on Mar 3.
Seadrill Partners LLC (SDLP) with an Earnings ESP of +10.53% and a Zacks Rank #3 (Hold). The partnership is likely to release earnings on Feb 26.
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