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Can Andeavor (ANDV) Keep the Earnings Streak Alive in Q3?

Zacks Equity Research

Independent oil refiner and marketer Andeavor ANDV is set to release third-quarter 2017 results after the closing bell on Nov 8.

San Antonio, TX-based downstream operator Andeavor — which counts Marathon Petroleum Corporation MPC, Valero Energy Corporation VLO and Phillips 66 PSX among its peers — posted a positive earnings surprise of 20.25% in the preceding quarter on significant contribution from the logistics and refining segments.  Coming to earnings surprise history, the company has an impressive record. The company has topped estimates in each of the last four quarters with an average positive surprise of 40.70%.

Which Way Are the Estimates Headed?

Let’s take a look at the estimate revisions in order to get a clear picture of analyst opinion on the stock before the earnings release.

The Zacks Consensus Estimate of $3.05 for third-quarter earnings has been revised upward by 13.4% over the last 30 days. Further, the earnings estimates for the current year have also moved up by 3 cents at $6.82.

These surging earnings estimate revisions signal promising prospects about Andeavor.


Andeavor Price and EPS Surprise


Andeavor Price and EPS Surprise | Andeavor Quote


Why a Likely Positive Surprise?

Our proven model also shows that Andeavor is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: Andeavor’s Earnings ESP is +6.38%. This is because the Most Accurate estimate is pegged at $3.25, higher than the Zacks Consensus Estimate of $3.05. A favorable ESP serves as a meaningful and leading indicator of a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.    

Zacks Rank: Valero currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note that stocks with a Zacks Rank #1, 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Valero’s favorable Zacks Rank and a positive ESP makes us reasonably optimistic of an earnings beat.

Factors at Play

Apart from bolstering its network of assets, downstream operator Western Refining’s buyout is likely to help Andeavor enhance its geographic footprint in the prolific Permian Basin, driving double-digit earnings growth in 2018.

Andeavor expects throughput level for the third quarter between 1,090 MBbl/d and 1,145 MBbl/d. This is higher than the 873 MBbl/d recorded in the year-ago quarter and 893 MBbl/d recorded in the prior quarter. With throughput set to be higher, we expect the company to report solid quarterly results.

Analysts polled by Zacks expect revenues of $11,629 million for the third quarter, up 77.7% and 48.2% from the year-ago and prior quarter respectively.

During the quarter, Andeavor strengthened its geographical foothold and began operations in Mexico with the opening of the first ARCO gas station in Tijuana. The development is likely to contribute to earnings and provide long-term growth opportunities.

We also appreciate the company’s strong balance sheet with high liquidity and low leverage ratios.

The positive factors are also reflected in the share price of Andeavor which rallied 10.2% during the quarter. Further, year-to-date, shares of the company have rose 26% compared the 7% gain recorded by the industry.

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