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Marathon Oil (MRO) to Report Q1 Earnings: What Lies Ahead?

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Marathon Oil Corporation (MRO - Free Report) is set to report first-quarter 2019 financial results on May 1, after market close. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at a profit of 6 cents on revenues of $1.22 billion.

In the last reported quarter, the company delivered an impressive positive earnings surprise of 15.38% on the back of better-than-expected production from its U.S Exploration and Production (E&P) segment. The company boasts an encouraging earnings surprise history. It surpassed estimates in three of the last four quarters, with average positive surprise of 6.70%.

Investors are keeping their fingers crossed and hoping that the company can surpass earnings estimates this time around too. However, our model indicates that Marathon Oil might not beat on earnings in the to-be-reported quarter.

Let’s delve deeper and find out the factors likely to impact the upcoming results.

Factors at Play

Following the oil crash toward the end of 2018 that caught everyone off guard, WTI crude popped up to $60.55 a barrel in the March quarter of 2019, witnessing the fastest rate of oil price increase since a decade. Crude prices rebounded 30% in the first quarter, underpinned mainly by OPEC+ supply cuts and U.S. sanctions against Venezuela and Iran, which bode well for upstream players like Marathon Oil. 

In addition to favorable oil prices, the company is expected to realize the benefits of production growth in the United States. Driven by key low cost-high margin U.S. resource shale plays like Permian, Eagle Ford and Bakken,the company expects first-quarter U.S. oil output in the band of 175-185 barrels per day, Indicating an increase from 164 bpd in the year-ago period.

While Marathon Oil expects to reap profits from the U.S. E&P segment, the international market is likely to bear the brunt of contracting volumes in the first quarter. As it is, output from the International E&P unit has been declining over several quarters and the trend is likely to continue this season as well. In fact, the firm itself anticipates international production to decline further in the to-be-reported quarter amid planned turnaround activity in Equatorial Guinea.

As such, the Zacks Consensus Estimate for total output (both U.S. and International) is pegged at 396 barrels of oil equivalent per day (Boe/d), suggesting a decline from the year-ago figure of 431 Boe/d.

While we expect rebounding oil prices and rising output from the U.S. E&P segment to aid Marathon Oil’s first-quarter 2019 results, dim prospects of the international segment may limit profits.

Earnings Whisper

Our proven model does not conclusively predict that Marathon Oil will beat the Zacks Consensus Estimate in the quarter to be reported. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a 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 -4.78%.

Zacks Rank: Marathon Oil currently has a Zacks Rank #3 (Hold), 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 momentum.

Stocks to Consider

While earnings beat looks uncertain for Marathon Oil, here are some companies from the energy space that you may want to consider on the basis of our model, which shows that these have the right combination of elements to come up with a positive surprise in the upcoming quarterly reports:

Abraxas Petroleum Corporation (AXAS - Free Report) has an Earnings ESP of +133.33% and a Zacks Rank #3. The company is anticipated to release quarterly earnings on May 6.

C&J Energy Services, Inc. (CJ - Free Report) has an Earnings ESP of +4.76% and a Zacks Rank #3. The company is expected to release quarterly earnings on May 7.

Comstock Resources Inc. (CRK - Free Report) has an Earnings ESP of +11.11% and a Zacks Rank #2. The company is set to release first-quarter earnings on May 9. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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