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Will Phillips 66 (PSX) Disappoint This Earnings Season?

Phillips 66 PSX, an energy manufacturing and logistics company is expected to report first-quarter 2016 earnings on Apr 29.

In the last quarter, the company’s adjusted earnings of $1.31 per share beat the Zacks Consensus Estimate of $1.30. The bottom line, however, deteriorated from the year-ago quarter level of $1.63.

Let’s see how things are shaping up prior to the announcement.

And here's how things are shaping up for this announcement.

Factors Likely to Affect Earnings

Phillips 66 through its extensive infrastructural network manages 15,000 miles of crude oil, petroleum product and NGL pipeline, 42 finished product terminals, eight liquefied petroleum gas terminals, five crude oil terminals, and one coke exporting facility. The company’s vast range of operations should help it in increasing revenues and boost shareholder value in the coming years.

Phillips 66 remains focused on its supply chain network. To this end, the company invested heavily on transportation and logistics assets. This should enhance the company’s crude extraction capabilities from sources round the globe, thereby boosting its earnings.

However, Phillips 66’s performance is dependent upon sourcing crude oil from suppliers round the globe. Steady supply is mandatory for the company to maintain its production volume. Any geo-political disturbance round the globe can render its refineries idle and hamper its top-line growth. As such, the company’s profitability depends upon the spread among the margins of refined product prices and crude oil feedstock prices. However, the spread is dependant upon a host of macro factors that are outside the domain of its control.

Moreover, Phillips 66’s chemicals business operates in a highly volatile industry where sales prices are always fluctuating. The company’s profitability in such a sector is not always guaranteed by controlling the prices of raw materials only.
 
Earnings Whispers

Our proven model does not conclusively show that Phillips 66 is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #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 0.00%. Both the Most Accurate estimate and the Zacks Consensus Estimate for Phillips 66 stands at 86 cents.

Zacks Rank: Phillips 66 carries a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. We caution against Sell-rated stocks (Zacks Rank #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies from the same space which, according to our model, have the right combination of elements to post an earnings beat this quarter:

Chesapeake Energy CHK has an Earnings ESP of +9.09% and a Zacks Rank #3.

Diamond Offshore Drilling, Inc. DO has an Earnings ESP of +11.11% and a Zacks Rank #3.

Ensco plc ESV has an Earnings ESP of +6.25 % and a Zacks Rank #3.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
ENSCO PLC (ESV): Free Stock Analysis Report
 
DIAMOND OFFSHOR (DO): Free Stock Analysis Report
 
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
 
PHILLIPS 66 (PSX): Free Stock Analysis Report
 
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