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What's in Store for Marathon Petroleum's (MPC) Q4 Earnings?

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Marathon Petroleum (MPC - Free Report) is expected to release fourth-quarter 2018 results before the opening bell on Feb 7.

In the preceding three-month period, the independent oil refiner and marketer beat the Zacks Consensus Estimate by 1.19% on rising income from its midstream division.

As far as earnings surprises are concerned, the Findlay, OH-based downstream operator is on a firm footing, having surpassed the Zacks Consensus Estimate thrice in the last four reports.

Investors are keeping their fingers crossed and hoping that the company can continue winning ways by surpassing earnings estimates this time around as well.

The current Zacks Consensus Estimate for the quarter to be reported is a profit of $1.98 per share on revenues of $33.1 billion. However, earnings estimates have moved south by more than 73% over the past 30 days. Nonetheless, the top and bottom line estimates reflect year-over-year improvement of 56% and 88.6%, respectively.

Let’s take a look at the factors that are likely to shape Marathon Petroleum’s fourth-quarter earnings.

Factors at Play

Narrowing crack spreads along with lower refined products sales and throughput volumes are likely to impact the performance of the Refining & Marketing segment — the main contributor to Marathon Petroleum earnings. Per the company, the crack (or the margin for making petroleum products from crude) in fourth-quarter 2018 was $4.32 a barrel, down from $7.17 a year ago. Moreover, the Zacks Consensus Estimate for refined products sales volumes is pegged at 2,327 thousand barrels per day (mbpd), reflecting a decline from 2,414 mbpd a year ago. Further, the throughput is expected to decrease around 3% on a year-over-year basis to 1,967 mbpd. Consequently, the Zacks Consensus Estimate for the refining segment’s bottom line stands at $679 million, lower than the year-ago operating income of $732 million.

However, Marathon Petroleum’s Speedway (or Retail) division is expected to benefit from higher year-over-year margins and sales. Notably, merchandise sales are expected at $1,222 million versus $1,200 million in the fourth quarter of 2017. Further, merchandise margins are pegged at $348 million compared with $337 million in the year-ago quarter. Markedly, the number of convenience stores at the end of the quarter totaled 2,783 vis a vis 2,744 a year ago. As such, the current Zacks Consensus Estimate for quarterly income from operations is $287 million, way higher than $149 million reported in the year-ago level and also ahead of $161 million in the last reported quarter.

Also, midstream segment profitability is expected to reach $832 million, up significantly from $343 million in the fourth quarter of 2017.

While the company is likely to feel the heat of lower refining margins and reduced refined product sales, improved midstream and retail earnings are likely to aid overall results.

What Does Our Model Say?

Our proven model does not conclusively predict that Marathon Petroleum will beat the Zacks Consensus Estimate in the to-be-reported quarter. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate Estimate stand at $1.98.

Zacks Rank: Marathon Petroleum currently has a Zacks Rank of 3, which increases the predictive power of ESP. But we also need to have a positive Earnings ESP to be confident of a positive surprise.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Stocks to Consider

While earnings beat looks uncertain for Marathon Petroleum, here are some firms from the energy space you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat in the upcoming releases:

CSI Compressco LP (CCLP - Free Report) has an Earnings ESP of +12.50% and a Zacks Rank #3. The company is expected to release fourth-quarter earnings on Feb 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

TechnipFMC (FTI - Free Report) has an Earnings ESP of +2.50% and holds a Zacks Rank #3. The company is slated to release fourth-quarter earnings on Feb 20.

Williams Companies (WMB - Free Report) has an Earnings ESP of +10.08% and a Zacks Rank #3. The firm is slated to release fourth-quarter earnings on Feb 13.

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