Marathon Oil Corporation (MRO), the oil and natural gas exploration and production (E&P) firm, is set to release third-quarter 2014 financial results on Monday, Nov 3, after the close of the trading session.
The company’s earnings history is a mixed bag. Marathon Oil has beaten the Zacks Consensus Estimate in two of the trailing four quarters while missing the same in the other two. In the last reported quarter, the company delivered a negative 16.22% earnings surprise. Let’s see how things are shaping up for this announcement.
Factors to Consider in the Past Quarter
Upstream firms like Marathon Oil are anticipated to be hit hard by the recent slump in oil prices. Price realizations are an important component in earnings growth for such E&P firms considering the persistent rise in exploration costs. However, better realizations seem challenging this quarter owing to the weak pricing scenario in the July–September quarter.
Additionally, the company’s third-quarter production guidance provided during its second-quarter results represents a year-over-year decline in almost all business segments. This further adds to the woes.
Also, absence of a downstream segment – as Marathon Oil spun off its refining business in 2011 forming Marathon Petroleum Corp. (MPC) – not only reduces its asset diversification but also increases it risk profile, especially in this weak pricing scenario.
Earnings Whispers?
Our proven model does not conclusively show that Marathon Oil is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Negative Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently -6.35%.
Zacks Rank: Marathon Oil has a Zacks Rank #5 (Strong Sell). We caution against Sell-rated stocks (#4 and 5) going into the earnings announcement.
Promising Stocks
Here are some other companies from the energy sector for investors to consider, that, according to our model have the right combination of elements to post an earnings beat this quarter:
Murphy USA Inc. (MUSA) has an Earnings ESP of +20.51% and a Zacks Rank #1 (Strong Buy).
Cobalt International Energy Inc. (CIE) has an Earnings ESP of +11.11% and a Zacks Rank #1.
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