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Independent refiner Tesoro Corp (TSO - Analyst Report) is scheduled to report its first-quarter 2013 results on May 1, after the closing bell.

In the fourth quarter of 2012, Tesoro delivered a -2.90% earnings surprise, due to an increase in operating, depreciation and amortization expenses. Let’s see how things are shaping up prior to this announcement.

Factors to Consider This Quarter

In our view, Tesoro’s lack of exposure to the other refining regions in the country weakens its competitive position. The company’s West Coast centric operations and heavy dependence on the weak Californian market act as major liabilities.

Additionally, with refiners being buyers of crude, an increase in oil prices can squeeze their profitability. As a result, with the commodity’s price hovering around $90–95 per barrel during the first quarter, we expect Tesoro’s margins to be negatively impacted due to a rise in the cost of oil it buys to make gas, jet fuel and other refined products.

Earnings Whispers

Our proven model does not conclusively show that Tesoro is likely to beat the Zacks Consensus Estimate in the first quarter. That is because a stock needs to have both a positive earnings Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as elaborated below.

Negative Zacks ESP: This is because the Most Accurate estimate stands at 71 cents while the Zacks Consensus Estimate is higher at 74 cents. This results in a difference of -4.05%.                          

Zacks Rank #3 (Hold): However, Tesoro’s Zacks Rank #3 increases the forecasting power of ESP. That said we also need to have a positive ESP to be confident of an earnings surprise call.

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

Stocks to Consider

Here are some energy companies you might want to consider on the basis of our model. These have the right combination of elements to post an earnings beat this quarter:

Exterran Partners LP (EXLP - Snapshot Report) has an earnings ESP of +4.35% and a Zacks Rank #1 (Strong Buy).

SemGroup Corporation (SEMG - Snapshot Report) has an earnings ESP of +28.95% and a Zacks Rank #1 (Strong Buy).

Delek US Holdings Inc. (DK - Snapshot Report) has an earnings ESP of + 0.86% and a Zacks Rank #2 (Buy).

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