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Tesoro Corporation (TSO): What to Expect in Q2 Earnings?

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Tesoro Corporation is set to report second-quarter 2016 results on Aug 3, after the closing bell.

Last quarter, Tesoro posted a positive earnings surprise of 14.42%. Moreover, over the last four quarters, the company’s average positive surprise was 6.08%.        
 
Factors to Consider this Quarter

Tesoro − one the largest independent oil refiners in the U.S. − generates earnings mostly by selling refined petroleum products that it produces by processing raw crude. Hence, the company’s business is negatively correlated with crude price, which makes up the input cost.

The second quarter saw crude advancing more than 26% sequentially − the best quarterly percentage gain in seven years. Throughout the quarter, oil price improved significantly from mid-February, when West Texas Intermediate (WTI) crude fell to a 12-year low mark of $26.05 per barrel. Moreover, in June, oil prices settled above the psychologically important $50 per barrel level for the first time in more than 10 months.

Hence, the recovery on the crude front is not favorable for refiners like Tesoro – since the event raises the input cost. However, the company projects throughput margin between 795 thousand barrels per day (MBbl/d) and 840 MBbl/d, higher than the year-ago comparable quarter figure of 783 MBbl/d.   

Let’s see whether the favorable fundamentals translate into an earnings beat in the second quarter.

Earnings Whispers

Our proven model does not conclusively show that Tesoro is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.  

Zacks ESP:  Both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.77, resulting in an Earnings ESP of 0.00%.     

Zacks Rank. Tesoro carries a Zacks Rank #5 (Strong Sell).

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

TESORO CORP Price and EPS Surprise

Stocks to Consider

Here are some companies for investors to consider as these have the right combination of elements to post an earnings beat this quarter:   

Northern Oil and Gas, Inc. (NOG - Free Report) with an Earnings ESP of +25.00% and a Zacks Rank #1.

Legacy Reserves LP with an Earnings ESP of +12.50% and a Zacks Rank #2.

Spectra Energy Corp (SE - Free Report) has an Earnings ESP of +12.00 % and a Zacks Rank #2.

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