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Factors Likely to Shape HollyFrontier's (HFC) Q1 Earnings

Zacks Equity Research

HollyFrontier Corporation HFC is set to report first-quarter 2019 results on May 2, before the opening bell. The current Zacks Consensus Estimate for first-quarter earnings stands at 36 cents on revenues of $3.74 billion.

In the preceding three-month period, this U.S. refiner and marketer delivered better-than-expected earnings on the back of higher refining margins. Coming to its earnings surprise history, HollyFrontier has managed to beat estimates thrice in the trailing four quarters, the average positive surprise being 32.90%.

HollyFrontier Corporation Price and EPS Surprise

HollyFrontier Corporation Price and EPS Surprise | HollyFrontier Corporation Quote

Investors are keeping their fingers crossed and hoping that HollyFrontier’s earnings surpass earnings this time around as well.However, the proven Zacks model indicates that HollyFrontier might not pull off a positive surprise in the to-be-reported quarter.

Let’s see, which way the estimates are trending this time.

The Zacks Consensus Estimate for the quarter to be reported has moved 21 cents south in the past 30 days to earnings of 36 cents. The consensus mark for revenues is pegged at $5.9 billion. Moreover, the top and the bottom-line estimates indicate a decline of 53.2% and 9.5%, respectively, from the year-ago reported figures. 

Let’s delve deeper to find out the factors likely to shape HollyFrontier’s upcoming results.

Factors at Play

HollyFrontier’s refining segment —a major contributor to its earnings — is likely to bear the brunt of contracting refining margins and lower throughput levels in the first quarter of 2019.

This downstream player’s refining index displayed a mixed trend in the to-be-reported quarter. The index values for the company’s largest refining region — Mid-Continent (which comprises El Dorado and Tulsa refineries) — have fallen to $14.74 a barrel from $15.56 in the year-ago quarter. Further, the refining index values for the Rockies region are also expected to be down year over year. While refining index values for the Southwest region are likely to increase, the same will not possibly offset the shrinking margins from the Mid-Continent (that accounts for a bulk of the company’s total throughput) and the Rockies regions. Hence, overall refining margin will probably witness a year-over-year decrease. 

Moreover, turnaround activity in the El Dorado Refinery during the first quarter might impact the throughput volumes and utilization levels. As such, HollyFrontier expects first-quarter throughput volumes in the band of 395,000-405,000 barrels per day (bpd), suggesting a respective decline from 452,050 bpd and 440,670 bpd, reported a year ago and sequentially.  Consequently, the Zacks Consensus Estimate for the income from refining operations is pegged at $88 million, implying deterioration from $309 million reported in first-quarter 2018.

Further, the Zacks Consensus Estimate for first-quarter income from Lubricants and Specialty Products segment is pegged at $18.8 million, down from the year-earlier reported number of $32.8 million. On a positive note, income from HEP segment is projected at $67 million, signaling an increase from the prior-year quarter’s reported level of $64.9 million.  

What Does the Model Say?

The proven Zacks model does not conclusively show that HollyFrontier will beat estimates in the upcoming quarterly report. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP:  HollyFrontierhas an Earnings ESP of 0.00%, representing the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Here, both estimates are pegged at 36 cents.

Zacks Rank: HollyFrontier currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here. While a favorable Zacks Rank increases the predictive power of ESP, a 0.00% ESP in the combination makes surprise prediction difficult for the stock this earnings season.

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

Stocks to Consider

Though an earnings beat looks uncertain for HollyFrontier, here are still a few energy firms worth considering on the basis of the quantitative Zacks model. These stocks have the right combination of elements to beat on earnings in the upcoming quarterly releases:

Abraxas Petroleum Corporation AXAS has an Earnings ESP of +133.33% and a Zacks Rank of 3. The company is anticipated to release quarterly earnings on May 6.

C&J Energy Services, Inc. CJ has an Earnings ESP of +14.87% and is a Zacks #3Ranked player. The company is expected to release first-quarter earnings on May 7.

Comstock Resources Inc. CRK has an Earnings ESP of +11.95% and a Zacks Rank #2. The company is set to release first-quarter earnings on May 9.

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