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What's in the Cards for Marathon Oil (MRO) in Q1 Earnings?

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Energy explorer Marathon Oil Corporation (MRO - Free Report) is set to release first-quarter 2017 results after the closing bell on May 4.

In the last reported quarter, the Houston, TX-based company delivered a positive earnings surprise of 23.08%. The better-than-expected results were driven by the company’s efficient cost-control initiatives and improvement in oil price realizations.

As far as the company’s earnings surprise history is concerned, it has an impressive record. Marathon Oil beat estimates in each of the last four quarters with an average positive surprise of 19.47%.

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

Factors at play

Marathon Oil under the Zacks US Oil and gas Exploration & Production industry is a leading energy firm with a large and geographically diverse reserve base and solid project pipeline. The company also has a healthy balance sheet with relatively better coverage and current ratios than its peers, providing it with financial flexibility. Further, the company’s strategic initiatives like cost reduction and efficiency gains are expected to have a positive impact on its finance.

Additionally, Marathon Oil inked a prudent deal in March, when it offloaded its Canadian oil sands business for $2.5 billion and acquired 21,000 acres of land from Permian Basin for $1.1 billion. In another deal signed in March, the company acquired 70,000 net acres in Permian Basin. Lowering operating costs associated with the oil sands business and increasing stake in the lucrative Permian Basin are likely to contribute positively in the earnings of the company.

However, the fate of Marathon Oil is directly correlated with crude prices. Volatility in commodity prices, especially in March, when the oil prices traded below the psychological $50 per barrel, is likely to affect the company’s revenues, earnings and cash flows. Moreover, the company reduced its production guidance by 5% owing to scheduled and unscheduled downtime internationally and divestitures in the last year. This might hurt revenues and earnings of the company. All this is reflected in the price performance of the company which declined by about 9% in the quarter.

Marathon Oil Corporation Price and Consensus

 

Earnings Whispers

Our proven model does not conclusively show that Marathon Oil 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) for this to happen. 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, for the company is -12.50%. This is because the Zacks Consensus Estimate is at a loss of 8 cents and the Most Accurate estimate is pegged higher at a loss of 9 cents.  You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Marathon Oil currently carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.

Please note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions

Stocks to Consider

While earnings beat looks uncertain for Marathon Oil, here are some firms for investors to consider in the broader energy space that, according to our model has the right combination of elements to post an earnings beat this quarter:

Global Partners L.P. (GLP - Free Report) has an Earnings ESP of +233.33% and a Zacks Rank #1. The partnership is anticipated to release first quarter earnings on May 9. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earthstone Energy, Inc is expected to release first-quarter earnings results on May 9. The company has an Earnings ESP of +133.33% and a Zacks Rank #3.

Alon USA Energy, Inc. is expected to release first-quarter earnings results on May 8. The company has an Earnings ESP of +138.46% and a Zacks Rank #3.

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