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HollyFrontier (HFC) to Report Q3 Earnings: Factors at Play

Zacks Equity Research
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HollyFrontier Corporation HFC is set to report third-quarter 2018 results on Oct 31, before the opening bell. The Zacks Consensus Estimate for the quarter to be reported is pegged at a profit of $1.63 per share on revenues of $4,521 million. The anticipated revenues reflect an increase of 21.5% from the year-ago level. The company’s earnings estimates also compares favorably with the year-ago profit of $1.14 per share. Nonetheless, the Zacks Consensus Estimate for earnings has moved 11.9% south in the past 30 days.

In the preceding three-month period, the U.S. refiner and marketer delivered weaker-than-expected earnings amid higher operating expenses and lower throughput levels. Coming to earnings surprise history, HollyFrontier has a mixed record. The company has managed to beat estimates twice in the trailing four quarters, delivering an average positive earnings surprise of 27.63%.

HollyFrontier Corporation Price and EPS Surprise

HollyFrontier Corporation Price and EPS Surprise | HollyFrontier Corporation Quote

Let’s see how things are shaping up prior to the announcement.

Factors Likely to Influence Upcoming Quarterly Results

HollyFrontier’s refining index has displayed a mixed trend in the to-be-reported quarter. The index values for the company’s largest refining region — Mid-Continent (which also comprises its El Dorado and Tulsa refineries) — have fallen to $18.90 a barrel from $20.08 in the year-ago quarter. Further, the Southwest region — comprising Navajo refinery — has seen its refinery index value to fall 2.6% in the July-September quarter. Notably, the Mid-Continent and Southwest region accounted for more than 85% of the throughput levels of the company in the last reported quarter.

Fall in the refining index value from these two regions is likely to partly offset the higher values from the Rocky Mountain region. Notably, refinery index values from the Rocky Mountain region, comprising Cheyenne and Woods Cross Refineries, have risen from $26.14 a barrel in the third quarter of 2017 to $28.75 in the to-be-reported quarter. Further, RIN expenses have been declining of late from the year-ago levels, which is likely to counter the falling margins from the Mid-Continent and Southwest region.

HollyFrontier’s diversification strategy via investing in midstream activities — through Holly Energy Partners L.P. — along with the Lubricants and Specialty Products unit is also likely to provide support to the company’s overall earnings.

Nonetheless, HollyFrontier is bearing the brunt of increasing operating costs and expenses, which might dent earnings. In 2017, the company's total costs rose 25% year over year. Even in the first and second quarters of this year, its expenses rose around 19%.

Earnings Whispers

Our proven model does not conclusively show that HollyFrontier is likely to beat estimates in the to-be-reported quarter. 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) to be able to beat the consensus estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. That is not the case here as you will see below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -2.69%. This is because while the Zacks Consensus Estimate for earnings per share is pegged at $1.63, the Most Accurate Estimate stands lower at $1.58.

Zacks Rank: HollyFrontier currently carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 or 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 a few firms from the energy space that you may want to consider. On the basis of our model, these have the right combination of elements to post an earnings beat in the quarter to be reported.

NOW Inc. DNOW has an Earnings ESP of +5.61% and a Zacks Rank #2. The firm is expected to release third-quarter earnings on Nov 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archrock, Inc. AROC has an Earnings ESP of +57.9% and carries a Zacks Rank #2. The firm is expected to report third-quarter earnings on Nov 1.

Enbridge Inc. ENB has an Earnings ESP of +5.26% and a Zacks Rank #1. The firm is expected to release third-quarter earnings on Nov 2.

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