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U.S. E&P Segment to Buoy Marathon Oil's (MRO) Q4 Earnings

Zacks Equity Research

Marathon Oil Corporation MRO is set to report fourth-quarter 2018 financial results on Feb 13, after market close. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at a profit of 13 cents on revenues of $1,440 million.

In the last reported quarter, the company delivered an impressive positive earnings surprise of 20.00% on the back of better-than-expected production from both its U.S. E&P and International segment. The company boasts an encouraging earnings surprise history. It surpassed estimates in three of the last four quarters, with average positive surprise of 65.36%.

Marathon Oil Corporation Price and EPS Surprise

Marathon Oil Corporation Price and EPS Surprise | Marathon Oil Corporation Quote

Why a Likely Positive Surprise?

Our proven model shows that Marathon Oil is likely to beat earnings estimates in the to-be-reported quarter, as it has the right combination of two key ingredients. 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 estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +2.36%. A favorable Earnings ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Marathon Oil currently holds a Zacks Rank #3. A Zacks Rank #3, when combined with a positive ESP, makes us confident of an earnings beat.

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

Factors at Play

Marathon Oil’s strong inventories of development projects place it well for growth. The company has been improving the quality of assets, which bodes well for production growth. It has successfully established itself in the Delaware Basin and STACK/SCOOP resource plays, while exiting the oil sands and conventional assets with limited upside. Driven by key low cost-high margin U.S. resource shales like Permian, Eagle Ford and Bakken, Marathon Oil forecasts 30-34% annual growth in 2018 production.

Management had earlier predicted fourth-quarter 2018 U.S. Exploration & Production (E&P) output available for sale in the range of 295,000-305,000 barrels of oil equivalent per day (BOE/d). The Zacks Consensus Estimate for total sales volume at the U.S. E&P segment for the fourth quarter is pegged at 304,000 BOE/d, which is well above the year-ago figure of 262,000 BOE/d. In addition to expanded production volumes, the North American market is likely to benefit from higher commodity price realizations, per our model. Realized prices in the United States are projected to increase on a year-over-year basis, which might in turn boost Marathon Oil’s top line. The Zacks Consensus Estimate for average oil price is pegged at $66 a barrel, reflecting a 20% jump from the prior-year level.

While the international market is likely to bear the brunt of contracting volumes and lower oil prices, we expect the company to easily tide over the international limitations owing to robust performance from the domestic segment.

Other Stocks to Consider

Marathon Oil is not the only energy firm looking up this earnings season. Here are some other companies from the same space, which according to our model also have the right combination of elements to post an earnings beat in the to-be-reported quarter.

Concho Resources Inc. CXO has an Earnings ESP of +2.97% and a Zacks Rank #3. The company is set to release fourth-quarter earnings on Feb 19. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Diamondback Energy, Inc. FANG has an Earnings ESP of +1.29% and a Zacks Rank #3. The company is expected to release fourth-quarter earnings on Feb 19.

Chesapeake Energy Corporation CHK has an Earnings ESP of +6.87% and a Zacks Rank #3. The company is anticipated to release fourth-quarter earnings on Feb 27.

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