Will Marathon Oil (MRO) Beat Earnings?


We expect Houston, Texas based energy exploration and production firm Marathon Oil Corp. (MRO) to beat expectations when it reports second-quarter 2013 results after the market closes on Aug 6, 2013.  

Why a Likely Positive Surprise?

Our proven model shows that Marathon Oil is likely to beat earnings because it has the right combination of two key factors.  

Positive Zacks ESP:Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate of 72 cents and the Zacks Consensus Estimate of 71 cents, stands at +1.41%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares. 

Zacks Rank #3 (Hold):The stocks with a Zacks Rank #1 (Strong Buy), Zacks Rank #2 (Buy) and Zacks Rank #3 (Hold) have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered while going into an earnings announcement.

The combination of Marathon Oil’s Zacks Rank #3 (Hold) and +1.41% ESP makes us confident of a positive earnings beat.  

What is Driving the Better-Than-Expected Earnings?

Marathon Oil has a strong inventory of development projects that provides visible production growth over the coming years.  The Eagle Ford and Bakken shale plays are expected to offer Marathon a meaningful growth opportunity and management’s guidance of 7–10% annual production growth for 2013 seems to be on the conservative side.

New contracts and facility designs are expected to increase the company’s pipeline transport capacity, thus increasing reliability and reducing costs.

Marathon Oil’s divestiture program to do away with assets that do not fit in its long-term growth plan is intact. Recently, the company announced that it has entered into an agreement to sell its 10% working interest in Block 31, offshore Angola. Should the deal go through, it will help the company to close approximately $2.9 billion in divestitures, almost reaching the upper end of its target of $1.5–$3 billion through the period of 2011 to 2013. 

The company’s intention of sharing profits with its investors is also seen as a positive. Last month, Marathon Oil announced a 12% hike in its quarterly dividend, bringing the dividend amount to 19 cents per share.

Other Stocks to Consider

Here are some other energy firms that are worth considering as these also have the right combination to post an earnings beat this quarter:

Natural Gas Services Group Inc. (NGS) has an earnings ESP of +3.57% and a Zacks Rank #1 (Strong Buy).

Ferrellgas Partners LP (FGP) has an earnings ESP of +6.90% and a Zacks Rank #1 (Strong Buy).

Oasis Petroleum Inc. (OAS) has an earnings ESP of +3.33% and a Zacks Rank #3 (Hold).

Read the Full Research Report on FGP

Read the Full Research Report on MRO

Read the Full Research Report on OAS

Read the Full Research Report on NGS

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