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Can Andeavor (ANDV) Pull A Surprise This Earnings Season?

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Independent oil refiner and marketer Andeavor (ANDV - Free Report) – formed following the merger of Tesoro Corporation and El Paso-based Western Refining Inc. – is set to release second-quarter 2017 results after the closing bell on Aug 8. Tesoro completed the merger on Jun 1 and renamed itself to Andeavor, which started trading on NYSE under the ticker ANDV from Aug 1.

San Antonio, TX-based downstream operator Andeavor – which counts Marathon Petroleum Corporation (MPC - Free Report) , Valero Energy Corporation (VLO - Free Report) and Phillips 66 (PSX - Free Report) among its peers – posted a positive earnings surprise of 44.44% in the preceding quarter. Significant contribution from the logistics segment and improved performance of the refining segment drove the results.  Coming to earnings surprise history, the company has an impressive record. The company has topped estimates in each of the last four quarters with an average positive surprise of 57.52%.

Andeavor Price and EPS Surprise

Andeavor Price and EPS Surprise Andeavor Quote

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

Factors at play

Apart from bolstering its network of assets, downstream operator Western Refining’s buyout is likely to help Andeavor enhance its geographic footprint in the prolific Permian Basin, driving double-digit earnings growth in 2018. In June, Andeavor earned credit rating upgrade from both S&P and Fitch on healthy financials and decent coverage and liquid ratios. The company also intends to repurchase shares to offset the dilution associated with the merger.  

The company also clinched a deal with Mexico’s Pemex Logística which is expected to strengthen its geographical foothold in Mexico and expand its marketing business under the ARCO brand. The company will also be able to utilize El Paso refining capacity that it has access to now, thanks to the acquisition. This bodes well for the company’s long-term growth opportunities.

Although crude ended the second quarter of this year with a decline of 8.4%, the pricing environment of commodities was much healthier than the year-ago quarter, courtesy of the historical OPEC agreement. Andeavor is unlikely to benefit from the improvement in oil prices as the input cost for refiners increase with a price hike. Also, rising costs due to tougher RIN obligations are likely to weigh on the earnings and margins of the company. The RIN expense has increased from $3.3 to $3.5 per barrel in the second quarter when compared with the year-ago quarter.

Earnings Whispers

Our proven model does not conclusively show that Andeavor 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 surpass estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

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 are both pegged at $1.61.

Zacks Rank: Andeavor currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s Earnings ESP of 0.00% makes surprise prediction difficult.

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

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