Independent oil refiner and marketer Marathon Petroleum Corp. MPC is slated to release fourth-quarter 2017 results before the opening bell on Thursday, Feb 1.
In the preceding three-month period, the company delivered a positive earnings surprise of 22.07% on stronger fuel margin. Specifically, refining margin of $14.14 per barrel increased versus $11.32 last quarter and $10.67 a year ago.
As far as earnings surprises are concerned, the Findlay, OH-based downstream operator has a good history. It went past the Zacks Consensus Estimate thrice in the last four reports.
Marathon Petroleum Corporation Price and EPS Surprise
Marathon Petroleum Corporation Price and EPS Surprise | Marathon Petroleum Corporation Quote
However, things do not look too bright for the company in the quarter under review. In fact, the pessimistic sentiment surrounding the stock can be gauged from the Zacks Consensus Estimate for the fourth quarter, which moved down 8.3% over the last 30 days.
Let’s delve deep to find out the factors likely to impact Marathon Petroleum’s fourth-quarter results.
Factors to Consider This Quarter
We expect a more conservative refining outlook to affect the company’s bottom line in the fourth quarter of 2017. While crack spreads still remain elevated compared to where they were around a year ago, margin estimates have come down from post-Harvey levels.
Gasoline prices jumped to two-year highs in the third quarter in the wake of Hurricane Harvey that struck the U.S. Gulf Coast – home to more than 45% of domestic oil refining capacity – and caused weeks of disruptions, creating supply shortages. With oil prices essentially remaining unaffected, crack spreads soared.
However, capture rates have since come off those lofty levels. This is expected to hamper financial and operational performance of the Refining & Marketing segment – the main contributor to Marathon Petroleum earnings. As it is, the recent oil price rally has made the commodity costlier for refiners and has in turn led to higher input cost.
The negative impact of lower margins will be partly offset by higher sales volumes. The Zacks Consensus Estimate for total refined product sales volume is pegged at 2,410 thousand barrels per day (mbpd), up from the 2,240 mbpd in the year-ago quarter and an increase of 2.2% sequentially.
Meanwhile, Marathon Petroleum’s Speedway (or Retail) division is also likely to benefit from higher output. We note that the current Zacks Consensus Estimate for the quarterly merchandise sales is $1,246 million, above the $1,230 million reported in the year-ago quarter. Also, we anticipate merchandise gross margin at $355 million, up from the prior year quarter margin of $350 million.
What Does Our Model Say?
Our proven model too 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
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 -4%.
Zacks Rank: Marathon Petroleum is #1 Ranked. Though a Zacks Rank of 1 increases the predictive power of ESP, a negative ESP 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:
Pioneer Natural Resources Company PXD has an Earnings ESP of +4.85% and a Zacks Rank #1. The company is expected to release earnings results on Feb 6. You can see the complete list of today’s Zacks #1 Rank stocks here.
Suncor Energy Inc. SU has an Earnings ESP of +12.44% and a Zacks Rank #1. The company is likely to release earnings on Feb 7.
TOTAL S.A. TOT has an Earnings ESP of +11.32% and a Zacks Rank #2. The company is anticipated to release earnings on Feb 8.
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