The Zacks Analyst Blog Highlights: Chevron, Exxon Mobil, Dril-Quip, Stone Energy and Tenet Healthcare

Zacks

For Immediate Release
 
Chicago, IL – October 14, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Chevron Corporation (CVX-Free Report), Exxon Mobil Corp. (XOM-Free Report), Dril-Quip Inc. (DRQ-Free Report), Stone Energy Corp. (SGY-Free Report) and Tenet Healthcare Corp. (THC-Free Report).
 
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Here are highlights from Friday’s Analyst Blog:

Chevron: Weak Pre-Q3 Update

U.S. energy behemoth Chevron Corporation (CVX-Free Report) released its third-quarter 2013 interim update covering the first two months of the September quarter. Chevron expects foreign exchange translation effect of negative $250–$350 million during the quarter. Moreover, Chevron believes its third quarter 2013 earnings to go down as compared to the previous quarter.

In the upstream activities, the update is slightly bullish with oil production expected to be above the year-ago period and the previous quarter. The price realization for crude oil is expected to increase from second-quarter 2013, both in the U.S. and abroad.

However, in the downstream sector, the outlook is negative as the company expects the sector’s operating result to be substantially lower than the last quarter. Additionally, the refining margin is expected to decrease in the U.S. West Coast.

Segmental Analysis

Upstream: The company’s oil and natural gas production averaged 2.589 million oil-equivalent barrels per day, up 2.9% from the third-quarter 2012 level. The hike was owing to increased domestic and international production. While production increased marginally by 0.3% sequentially.

In the first two months of the September quarter, Chevron’s total domestic production was 651,000 barrels of oil equivalent per day (BOE/D) as compared to 659,000 BOE/D in the previous quarter. The decrease was owing to shutdown activities in the Gulf of Mexico.

Net international oil equivalent production – at 1,938,000 BOE/D – was 15,000 barrels per day more than the second quarter of 2013. The increase was due to comparatively lower maintenance work and shutdown activities worldwide.

The U.S. crude price realizations during Jul–Aug 2013 averaged $96.73 per barrel, up from $92.25 in second-quarter 2013, while international realizations increased by $10.91 to $104.62 per barrel. Chevron’s domestic realized natural gas prices for this period averaged $3.30 per thousand cubic feet (Mcf), compared with $3.78 in the second quarter of 2013. Moreover, average international natural gas realizations were down 12 cents per Mcf to $5.81.

Downstream: Regarding downstream operations, the second-largest U.S. oil company by market value after Exxon Mobil Corp. (XOM-Free Report), said that its domestic refinery crude-input rose 4,000 barrels per day as compared to the previous quarter. The results were aided by the restart of a refinery crude unit in Richmond and California. This was however partially offset by El Segundo, Calif. based refineries’ planned shutdown activities.

Refinery crude input volumes outside the U.S. were also up (by 21,000 barrels per day) during the same period due to the completion of maintenance work by the first half of second-quarter 2013.

The third-quarter refining margins decreased by $3.97 per barrel sequentially in the U.S. West Coast, however, it increased by $2.07 per barrel in the Gulf Coast.

Third Quarter Estimate

Chevron plans to release its quarterly results on Nov 1, 2013, before the opening bell. The Zacks Consensus Estimate for Chevron’s third quarter is $3.10 per share.

Zacks Rating

Chevron currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better performing energy firms like Dril-Quip Inc. (DRQ-Free Report) and Stone Energy Corp. (SGY-Free Report) that offer value. Both the stocks sport a Zacks Rank #1 (Strong Buy).

Tenet Cut to Underperform
 
On Oct 9, 2013, we downgraded our recommendation on Tenet Healthcare Corp. (THC-Free Report) to Underperform from Neutral following the mixed second quarter results.

Why the Downgrade?

Estimates for Tenet Healthcare, have been declining ever since it reported preliminary second quarter results on Aug 6. Tenet Healthcare’s second-quarter earnings came in at 66 cents per share that missed the Zacks Consensus Estimate of 69 cents per share by 4.3%. However, results surpassed the year-ago quarter’s earnings of 41 cents per share by 61%.

Following the release of second quarter results, the Zacks Consensus Estimate for 2013 has gone down 2.2% to $2.25 per share. With this reduction in Zacks Consensus Estimates for 2013, this healthcare services company now has a Zacks Rank #3 (Hold).

Tenet Healthcare has a high level of uncollectible accounts and rising bad debts as it caters to a large number of uninsured and underinsured patients who have high burden of co-payments and deductibles. The first half of 2013 also suffered the same fate that more than offset the improvement in collection rate within self-pay accounts.

Moreover, the inpatient volumes of Tenet Healthcare has also been declining since the beginning of 2013 and a near term improvement to this situation is unlikely owing to a decline in adjusted admissions. This is also reflected in the company’s projection about inpatient volume for 2013 (a decline of 2%–4%) and the subsequent lowering of 2013 adjusted EBITDA guidance.

The elevated levels of operating expenses added to the concerns. Particularly, physician employment expense coupled with salaries, wages and benefits, supplies influenced the heavy expenses. Until physician employment are streamlined and patients fill out in their office practices, there would be no improvement in the scenario and Tenet Healthcare also expects to witness rising expenses through 2013. Furthermore, high financial leverage and overhang of lawsuits remains a matter of distress for the company.
 
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