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Tesoro Corp (TSO): What Will Q3 Earnings Release Unveil?

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Independent oil refiner and marketer Tesoro Corp. is set to release its third-quarter 2016 results after the closing bell on Monday, Oct 31.

In the preceding three-month period, the San Antonio, TX-based downstream operator delivered a positive earnings surprise of 96.05% on significant contribution from the logistics segment.

Coming to earnings surprise history, the company has a good record: its beaten estimates in 3 of the last four quarters, resulting in an average positive surprise of 26.50%.

TESORO CORP Price and EPS Surprise

 

TESORO CORP Price and EPS Surprise | TESORO CORP Quote

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

Factors to Consider This Quarter

Till recently, the downstream operators (oil refiners and marketers) like Tesoro benefited from crude’s collapse. This is because the companies use oil as an input from which they derive refined petroleum products like gasoline, the prime transportation fuel in the U.S. Hence, lower the oil price, higher will be their profits.

However, this also led to overproduction and stock build-up that now threatens to bite the refiners. The companies have been struggling this year with the existing stocks of refined product inventories – gasoline and distillate – remaining at their maximum seasonal levels in at least 20 years despite healthy demand. Consequently, margins have narrowed forcing some of the operators to announce production cuts, postpone capital spending and retrench employees.

In fact, as per industry data from British oil major BP plc, refining margin – the income from converting crude into gasoline and diesel – is set to drop 42% year over year to $11.60 per barrel.

Therefore, notwithstanding oil’s still relatively low levels, the earnings picture for Tesoro look rather uncertain.

Earnings Whispers

Our proven model does not conclusively show that Tesoro 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. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

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 the Most Accurate estimate and the Zacks Consensus Estimate both stand at $1.42.

Zacks Rank: Tesoro has a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% 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 Tesoro, 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:

CONE Midstream Partners L.P. has an Earnings ESP of +2.7% and a Zacks Rank #1. The partnership is expected to release earnings results on Nov 4. You can see the complete list of today’s Zacks #1 Rank stocks here.

Devon Energy Corp. (DVN - Free Report) has an Earnings ESP of +20.00% and a Zacks Rank #2. The partnership is anticipated to release earnings on Nov 1.

Comstock Resources Inc. (CRK - Free Report) has an Earnings ESP of +3.74% and a Zacks Rank #2. The company is likely to release earnings on Nov 8.

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