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The Zacks Analyst Blog Highlights: Chevron, Exxon Mobil, InterOil, Ferrellgas Partners and Legg Mason

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For Immediate Release

Chicago, IL – July 15, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Chevron Corporation (-Free Report), Exxon Mobil Corporation (-Free Report), InterOil Corporation (-Free Report), Ferrellgas Partners LP (-Free Report) and Legg Mason Inc. (-Free Report).

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Here are highlights from Friday’s Analyst Blog:

Chevron – Mixed Pre-Earnings Update

SU.S. energy behemoth Chevron Corporation (-Free Report) released its second-quarter 2013 interim update, covering the first two months of the quarter. Chevron expects foreign exchange translation effect of $250–$300 million during the quarter.

In the upstream activities, the update is bearish with oil production expected to be significantly below the previous quarter. The price realization for crude oil is expected to decrease as compared to first quarter 2013, both in U.S and abroad. However Chevron’s domestic natural gas price realization is expected to go up.

In the downstream sector the outlook is positive for the company with refining margin to increase in the U.S. West Coast and Gulf Coast.

Segmental Analysis

Upstream: The company’s oil and natural gas production averaged 2.569 million oil-equivalent barrels per day, down 2.1% from the second-quarter 2012 level. This was mainly due to decreased production volume internationally. Production is also likely to fall 2.9% sequentially.  

In the first two months of the June quarter, Chevron’s total domestic production was 659,000 barrels of oil equivalent per day (BOE/D) as compared to 664,000 BOE/D in the previous quarter. Net international oil equivalent production – at 1,910,000 BOE/D – was 71,000 barrels per day less than the first quarter of 2013. The decrease was due to soft demand in Thailand coupled with maintenance work in Nigeria and planned shutdown activities in Australia and Kazakhstan.

The U.S. crude price realizations during Apr–May 2013 averaged $93.08 per barrel, down from $94.49 in first-quarter 2013, while international realizations decreased by $9.34 to $93.01 per barrel. Chevron’s domestic realized natural gas prices for this period averaged $3.83 per thousand cubic feet (Mcf), compared with $3.11 in the first quarter of 2013. Average international natural gas realizations were down 11 cents per Mcf to $5.96.

Downstream: Regarding downstream operations, the second-largest U.S. oil company by market value after Exxon Mobil Corporation (-Free Report) said that its domestic refinery crude-input rose 183,000 barrels per day as compared to the previous quarter. The results were aided by the restart of a refinery crude unit in Richmond, CA, along with the finishing of maintenance work of the Pascagoula, MS-based refinery.

Refinery crude-input volumes outside the U.S. were also up (by 40,000 barrels per day) during the same period due to the completion of maintenance of refineries based in Burnaby, Canada and Cape Town, South Africa.

The second-quarter refining margins increased 86 cents per barrel sequentially on the U.S. West Coast and by 81 cents per barrel on the Gulf Coast.

Second Quarter Estimate

Chevron plans to release its quarterly results on Aug 2, 2013, before the opening bell. The Zacks Consensus Estimate for Chevron’s first quarter is $3.00 per share.

Zacks Rating

Chevron currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

However, there are certain firms in the energy sector that are expected to significantly outperform the equity markets in the next one to three months. These include InterOil Corporation (-Free Report) and Ferrellgas Partners LP (-Free Report). Both these stocks carry a Zacks Rank #1 (Strong Buy).

Legg Mason Downgraded to Underperform

We have downgraded our recommendation on Legg Mason Inc. (-Free Report) to Underperform from Outperform. Our decision was based on the company’s high level of net asset outflows.


Why the Downgrade?

Legg Mason is scheduled to announce fiscal first-quarter 2014 results on Jul 25. Notably, the company’s activities during the quarter did not win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter has moved down 3.6% to 80 cents over the last 30 days. Additionally, the earnings ESP (Read:Zacks Earnings ESP: A Better Method) for the quarter is -2.50%. This, along with its Zacks Rank #5 (Strong Sell), reduces the company’s chances of a positive earnings surprise.

Further, the likelihood of a downward estimate revision was more obvious for fiscal years 2014 and 2015. The Zacks Consensus Estimate went down 1.4% to $3.42 per share for 2014 and 0.5% to $3.93 per share for 2015 over the same time frame.

Moreover, Legg Mason’s fiscal fourth-quarter 2013 adjusted earnings lagged the Zacks Consensus Estimate.The earnings miss was primarily due to higher expenses.

The company’s initiatives to improve profitability through adding innovative product solutions to client bases, tapping potential investment capacities, expanding distribution relationships and undertaking cost-saving measures are commendable.  However, a sluggish economic recovery and net asset outflows remain plausible concerns. Hence, an improvement in the overall profitability might be limited in the near term.

 

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