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Peek into Oil Refining Q3 Earnings on Oct 27: MPC, INT, ALJ
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We are entering the heart of the Q3 earnings season, with more than 170 S&P 500 members coming out with results this week.
Picture Emerging Thus Far
We now have Q3 results from 116 S&P 500 members that combined account for account for 30% of the index’s total market capitalization. Total earnings for these companies are up 3.3% from the same period last year on 1.8% higher revenues, with 80.2% positive earnings surprises and 62.9% beating revenue estimates. (Data from the Earnings Preview report dated Oct 21, 2016).
Energy: A Drag but Not as Bad as Thought
Expectedly, the ‘Energy’ sector has been a big drag on the aggregate growth picture. For the few sector components on the S&P 500 index that have reported Q3 results, total earnings are down 54.6% on 20.6% lower revenues.
But the Energy sector’s results are so far better than expected, with 80.0% of companies beating earnings estimates – though undoubtedly aided by low expectations.
Till recently, the downstream operators (oil refiners and marketers) 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 (BP - Free Report) , 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 refiners look rather uncertain.
Stocks to Watch for Earnings on Oct 27
Let’s see what’s in store for three such companies expected to come up with third-quarter numbers on Thursday, Oct 27. Let’s take a look at how things are shaping up at their end.
One of the largest domestic refiner with a combined crude oil processing capacity of approximately 1.7 million barrels per day through its portfolio of seven refineries, Marathon Petroleum Corp. (MPC - Free Report) is expected to report third-quarter 2016 results before the opening bell.
In the preceding three-month period, the Findlay, OH-based downstream operator delivered a positive earnings surprise of 12.63% owing to improved merchandise margins and contribution from new and existing pipeline.
But an earnings beat is uncertain for Marathon Petroleum this time around. This is because, as per our proven model, a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP to beat on earnings. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Simultaneously, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
World Fuel Services Corp. is another oil refining company to report third-quarter results tomorrow – this time after the market closes.
Headquartered in Miami, FL, World Fuel Services engages in marketing, sale and distribution of fuel products and associated services globally. The company reported better-than-expected numbers in the second quarter on the back of successful cost reduction efforts. Moreover, World Fuel Services has an excellent track of earnings surprises, having beaten estimates in each of the last four quarters at an average rate of 16.47%.
However, our proven model shows that an earnings beat is uncertain for World Fuel Services in the to-be-reported quarter as it has an earnings ESP of 0.00% and Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Finally, we have independent refiner and petroleum products marketer Alon USA Energy Inc. coming up with third-quarter numbers tomorrow after market close.
The company is on a bit of a slippery surface though, having missed the Zacks Consensus Estimate in each of the last three reports.
Our model indicates that Alon USA is unlikely to beat on earnings this time also. This is because it is a Zacks Rank #3 stock and has an Earnings ESP of 0.00%.
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Peek into Oil Refining Q3 Earnings on Oct 27: MPC, INT, ALJ
We are entering the heart of the Q3 earnings season, with more than 170 S&P 500 members coming out with results this week.
Picture Emerging Thus Far
We now have Q3 results from 116 S&P 500 members that combined account for account for 30% of the index’s total market capitalization. Total earnings for these companies are up 3.3% from the same period last year on 1.8% higher revenues, with 80.2% positive earnings surprises and 62.9% beating revenue estimates. (Data from the Earnings Preview report dated Oct 21, 2016).
Energy: A Drag but Not as Bad as Thought
Expectedly, the ‘Energy’ sector has been a big drag on the aggregate growth picture. For the few sector components on the S&P 500 index that have reported Q3 results, total earnings are down 54.6% on 20.6% lower revenues.
But the Energy sector’s results are so far better than expected, with 80.0% of companies beating earnings estimates – though undoubtedly aided by low expectations.
Oil Refining & Marketing: Operating Environment Remain Depressed
Till recently, the downstream operators (oil refiners and marketers) 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 (BP - Free Report) , 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 refiners look rather uncertain.
Stocks to Watch for Earnings on Oct 27
Let’s see what’s in store for three such companies expected to come up with third-quarter numbers on Thursday, Oct 27. Let’s take a look at how things are shaping up at their end.
One of the largest domestic refiner with a combined crude oil processing capacity of approximately 1.7 million barrels per day through its portfolio of seven refineries, Marathon Petroleum Corp. (MPC - Free Report) is expected to report third-quarter 2016 results before the opening bell.
In the preceding three-month period, the Findlay, OH-based downstream operator delivered a positive earnings surprise of 12.63% owing to improved merchandise margins and contribution from new and existing pipeline.
But an earnings beat is uncertain for Marathon Petroleum this time around. This is because, as per our proven model, a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP to beat on earnings. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
For the quarter to be reported, Marathon Petroleum has an Earnings ESP of 0.00%, while it carries a Zacks Rank #3. (Read more: Marathon Petroleum Q3 Earnings: What's in the Cards?)
Simultaneously, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
MARATHON PETROL Price and EPS Surprise
MARATHON PETROL Price and EPS Surprise | MARATHON PETROL Quote
World Fuel Services Corp. is another oil refining company to report third-quarter results tomorrow – this time after the market closes.
Headquartered in Miami, FL, World Fuel Services engages in marketing, sale and distribution of fuel products and associated services globally. The company reported better-than-expected numbers in the second quarter on the back of successful cost reduction efforts. Moreover, World Fuel Services has an excellent track of earnings surprises, having beaten estimates in each of the last four quarters at an average rate of 16.47%.
However, our proven model shows that an earnings beat is uncertain for World Fuel Services in the to-be-reported quarter as it has an earnings ESP of 0.00% and Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
WORLD FUEL SVCS Price and EPS Surprise
WORLD FUEL SVCS Price and EPS Surprise | WORLD FUEL SVCS Quote
Finally, we have independent refiner and petroleum products marketer Alon USA Energy Inc. coming up with third-quarter numbers tomorrow after market close.
The company is on a bit of a slippery surface though, having missed the Zacks Consensus Estimate in each of the last three reports.
Our model indicates that Alon USA is unlikely to beat on earnings this time also. This is because it is a Zacks Rank #3 stock and has an Earnings ESP of 0.00%.
ALON USA ENERGY Price and EPS Surprise
ALON USA ENERGY Price and EPS Surprise | ALON USA ENERGY Quote
Zacks' Best Investment Ideas for Long-Term Profit
Today you can gain access to long-term trades with double and triple-digit profit potential rarely available to the public. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this private information? Click here >>