Marathon Oil (MRO): What to Expect This Earnings Season?

Upstream energy firm Marathon Oil Corp. MRO is expected to release third-quarter 2015 results after the close of the trading session on Nov 11.

On the earnings front, the company reported mixed numbers beating 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 Houston, TX-based firm delivered a positive earnings surprise of 14.81% despite the challenging environment.

Let’s see how things are shaping up for this announcement.

Factors to Consider

As is the case with other oil and gas producers, Marathon Oil’s revenues and earnings too have borne the brunt of the persistent weakness in realized prices. With crude oil trading around mid-$40 per barrel for the majority of the third quarter, the company’s profits are expected to see a substantial year-over-year decline.

However, Marathon Oil continues to deliver strong volume growth, which should offset some of the pricing woes. Third-quarter production is expected to see a sequential increase. In fact, the company increased the lower end of its full-year production target reflecting a 5–7% year-over-year production growth.

Also, Marathon Oil intends to shore up its margins even in this weak oil and gas pricing environment. As part of this strategy, the company has embarked on a policy to minimize production and service costs. The firm’s aggressive cost-reduction program should also bode well for it.

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 and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. 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 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate for Marathon Oil are pegged at a loss of 42 cents.

Zacks Rank: Marathon Oil carries a Zacks Rank #3 (Hold). Though a favorable Zacks Rank increases the predictive power of ESP, our prediction is complicated by the company’s 0.00% ESP.

We caution against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Natural Gas Services Group Inc. NGS has an Earnings ESP of +11.11% and a Zacks Rank #1. The company is anticipated to release earnings on Nov 5.

Seadrill Partners LLC SDLP has an Earnings ESP of +12.00% and a Zacks Rank #1. The partnership is expected to release earnings on Nov 25.

Swift Energy Co. SFY has an Earnings ESP of +11.11% and a Zacks Rank #2. The company is likely to release earnings on Nov 5.

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