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Phillips 66 (PSX) to Post Q3 Earnings: Is a Beat in Store?

Zacks Equity Research

Phillips 66 PSX is expected to trump estimates when it releases third-quarter 2019 results on Oct 25, before market open.

Investors expect this diversified energy manufacturing and logistics company to continue winning ways. Let’s see how things have shaped up prior to the announcement.

Which Way are Estimates Headed?

Let’s take a look at the estimate revision trend to get a clear picture of what analysts expect from the company prior to the earnings release.

The Zacks Consensus Estimate of $2.49 for third-quarter earnings per share has been revised upward from $2.28 over the past 30 days.

Further, the Zacks Consensus Estimate for revenues of $28.3 billion suggests a 7.5% drop from the prior-year quarter.

What the Quantitative Model Suggests

Our proven model predicts an earnings beat for Phillips 66 this time around. This is because it has the right combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP: Phillips 66 has an Earnings ESP of +4.50%. This is because the Most Accurate Estimate of $2.60 per share is pegged higher than the Zacks Consensus Estimate of $2.49. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #3.

What is Driving the Better-Than-Expected Earnings?

The WTI crude price in third-quarter 2019 was lower than the year-ago period. In July, August and September, WTI averaged $57.35, $54.81 and $56.95 per barrel, respectively, per the U.S. Energy Information Administration. In comparison, WTI averaged $70.98, $68.06 and $70.23 per barrel, respectively, in the comparable three months of 2018. The low crude price is expected to have resulted in significant year-over-year improvement in realized refining margin for the to-be-reported quarter. Notably, this holds tremendous significance for the company as the Refining segment is the largest contributor to profits (55% in 2018).

The DJ O’Connor 2 plant, operated by DCP Midstream, LP DCP — a joint venture between Phillips 66 and Enbridge Inc. ENB — came online in August. The plant added 200 million cubic feet per day of natural gas processing capacity in the prolific Denver-Julesburg (DJ) Basin, which boosted the company’s profits from processing.

Performance in the Last Reported Quarter

In the last reported quarter, Phillips 66’s earnings of $3.02 per share surpassed the Zacks Consensus Estimate of $2.70, courtesy of contributions from pipeline transportation businesses. As far as earnings surprises are concerned, the Houston, TX-based company is on a firm footing, as it surpassed the Zacks Consensus Estimate in all the last four quarters, with the average being 32.5%. This is depicted in the graph below:

Phillips 66 Price and EPS Surprise

Phillips 66 Price and EPS Surprise

Phillips 66 price-eps-surprise | Phillips 66 Quote

Another Stock Poised to Beat Estimates

Here is another firm that you may want to consider on the basis of our model. It also has the right combination of elements to beat estimates for the to-be-reported quarter.

Rattler Midstream LP RTLR has an Earnings ESP of +13.76% and a Zacks Rank of 2. The company is slated to announce third-quarter 2019 earnings on Nov 5. You can see the complete list of today’s Zacks #1 Rank stocks here.

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