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Here's Why You Should Steer Clear of Magnolia (MGY) Now

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Magnolia Oil & Gas Corporation (MGY - Free Report) has lost 19.4% in the past year compared with the oil & energysector’s 20.6% decline. Moreover, the stock, currently carrying a Zacks Rank #4 (Sell), has been seeing downward estimate revisions for third and fourth quarters, and 2019 earnings by all analysts in the past 60 days.

Downward Estimate Revisions

The Zacks Consensus Estimate for the company’s 2019 earnings of 46 cents has been revised downward from 56 cents in the past 60 days.

Moreover, the company’s earnings estimates for 2020 have been revised downward to 57 cents per share from 72 cents over the same period.

Reasons for the Downgrade

Oil prices continue to retreat from historic gains after Saudi Arabia successfully restored roughly 50% of crude production loss, steaming from the weekend drone attack on the kingdom’s oil facilities. The price of the commodity is unlikely to recover soon as Saudi Arabia confirmed that by the end of September 2019, oil production will return to the pre-strike level. Weak energy demand, owing to the global economic slowdown, is also dragging the price of oil in the bearish territory.

Being an independent oil producer, with crude contributing to almost 54% of total production volume, the weak pricing environment of the commodity is hurting the upstream energy player’s bottom line.

Moreover, the company’s exploration and lease operating expenses increased sequentially in the June quarter of 2019, affecting its profit.

Notably, Magnolia’s earnings surprise history is not impressive. The company failed to beat the Zacks Consensus Estimate in all the prior three quarters, the average negative earnings surprise being 29%.

Stocks to Consider


A few better-ranked players in the energy space are National Oilwell Varco Inc. NOV, World Fuel Services Corporation INT and Delek Logistics Partners LP DKL. While National Oilwell currently sports a Zacks Rank #1 (Strong Buy), World Fuel and Delek Logistics carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

National Oilwell is likely to see earnings growth of 75% in 2019.

World Fuel beat the Zacks Consensus Estimate in each of the trailing four quarters, the average earnings surprise being 16.4%.

Delek Logistics is likely to see earnings growth of 4.9% in 2019.

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