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What's in Store for Marathon Oil (MRO) This Earnings Season?

Energy explorer Marathon Oil Corporation MRO is set to release third-quarter 2017 results after the closing bell on Nov 1.

In the last quarter, the Houston, TX-based company reported a wider-than-expected loss on lower production from the U.S. land markets. However, Marathon Oil has topped estimates in three out of the last four quarters with an average beat of 1.57%.

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

Which Way are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company before earnings release.

The Zacks Consensus Estimate for 2017 for loss for the current quarter has been revised downward by 13.33% over the last 30 days. Further, the Zacks Consensus Estimate for 2017 for loss has also moved south by 10.42% over the last 30 days.

Factors to Consider

Marathon Oil’s strong inventory of development projects poise it for growth in the coming years. The company has been improving the quality of assets and is well positioned to augur production.Optimizing its core Bakken and Oklahoma programs, Marathon Oil expects its 2017 production to grow by approximately 7% with U.S. resource play output increasing by 23-27%. The recent oil sands mining divestiture and Permian acquisitions are expected to boost the company’s prospects.

Marathon Oil recently stated that its third-quarter 2017 average production for sale from the United States will be toward the high end of its guidance despite Hurricane Harvey’s impact. It had guided production of around 230,000-240,000 net barrels of oil equivalent per day (BOE/d).The current Zacks Consensus Estimate for the quarterly output is pegged at 237,000 BOE/d, higher than the 222,000 BOE/d reported in the prior quarter. 

The company foresees its global E&P operations, excluding Libya, to produce 345,000-360,000 net BOE/d. The Zacks Consensus Estimate for total sales volume stands at 372,000 BOE/d as against 357,000 BOE/d in second-quarter 2017.

However, the persistent weakness in the commodity price environment is likely weigh on Marathon Oil’s cash flows and revenues. The Zacks Consensus Estimate for average realized gas price in the international markets is pegged at 52 cents per thousand cubic feet (Mcf), lower than the prior quarter figure of 57 cents. The crude price realization in the international markets is estimated at $41.61 per barrel, lower than the $47.04 per barrel recorded in second-quarter 2017. Even for the North American segment, The Zacks Consensus Estimate for crude price realization is pegged at $44.24 per barrel, lower than the $45.81 per barrel in the prior quarter. Lower price realizations may put the company’s earnings under pressure.

Further, 2017 capex budget of $2.2 billion doubles 2016’s level of spending. This might also hurt the near term financials of the company.

Price performance in Q3

During the quarter, Marathon Oil rallied more than 14% outperforming the broader industry’s 9% gain.

Earnings Whispers

Our proven model does not conclusively show that Marathon Oil is likely to beat earnings estimates this quarter. This 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. This 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 -11.54%. This is because the Most Accurate estimate stands at a loss of 15 cents, while the Zacks Consensus Estimate is pegged at a loss of 13 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Marathon Oil presently carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, a negative ESP makes the surprise prediction difficult. Conversely, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks with Favorable Combination

Though an earnings beat looks uncertain for Marathon Oil, here are some firms from the energy space you may want to consider as our model shows that these have the right combination of elements to post earnings beat:

Noble Midstream Partners LP NBLX has an Earnings ESP of +10.48% and sports a Zacks Rank #1. The partnership is likely to report third-quarter earnings numbers on Oct 30.You can see the complete list of today’s Zacks #1 Rank stocks here.

Canadian Natural Resources Limited CNQ has an Earnings ESP of +7.46% and carries a Zacks Rank #2.The company is expected to release third-quarter earnings report on Nov 2.

Andeavor ANDV has an Earnings ESP of +5.02% and carries a Zacks Rank #3. The company is expected to release third-quarter earnings results on Nov 8.

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