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Phillips 66 (PSX): Can it Surprise this Earnings Season? - Analyst Blog

Phillips 66 PSX is expected to release first-quarter 2015 results before the opening bell on Thursday, Apr 30.

The company surpassed the Zacks Consensus Estimate in three of the trailing four quarters with an average positive surprise of 10.29%. In the last reported quarter, Phillips 66 beat the Zacks Consensus Estimate by 30 cents. Higher refined volumes, increased throughput fees and record earnings from chemicals business supported the results.

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

Factors to Consider

Phillips 66 is expected to benefit from its refining segment owing to the weak crude pricing environment. Wider crack spreads should also support earnings. Additionally, since Phillips 66 is not a pure refining company, its Midstream and Chemicals segments will also be contributing to growth. Lower feedstock prices should help its Chemicals business.

However, the company’s refineries are likely to be hit by the strike that was called during the quarter. Increased downtime may significantly hamper earnings for the firm.

Furthermore, continued low prices could slow midstream investments and growth outlook as well as adversely affect Phillips 66’s operations. Also, anticipated lower margins at DCP Midstream may add to the woes.

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 (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.     

Zacks ESP: Earnings ESP which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -0.71%. The Most Accurate estimate for Phillips 66 stands at $1.39 while the Zacks Consensus Estimate is pegged higher at $1.40.     
 
Zacks Rank: Phillips 66 carries a Zacks Rank #3 (Hold). Though a Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of -0.71% makes surprise prediction difficult.   

We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

While earnings beat looks uncertain for Phillips 66, here are some firms, which have the right combination of elements to post an earnings beat this quarter:     

Energy Transfer Equity, L.P. ETE has an Earnings ESP of +27.27% and a Zacks Rank #1 (Strong Buy). The company is slated to release earnings on May 5.

Western Refining, Inc. WNR has an Earnings ESP of +6.73% and a Zacks Rank #2 (Buy). The company is scheduled to release earnings on May 5.

TC PipeLines, LP TCP has an Earnings ESP of +10.67% and a Zacks Rank #2. The company is expected to release earnings on May 7.


 


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