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Why Is a Q4 Earnings Beat Less Likely for ExxonMobil (XOM)?

Zacks Equity Research

Exxon Mobil Corporation XOM is set to report fourth-quarter 2018 results, before the opening bell on Feb 1. 

The company failed to surpass the Zacks Consensus Estimate in three of the last four quarters, the average negative earnings surprise being 6.9%. In the last reported quarter, ExxonMobil’s earnings of $1.46 per share beat the Zacks Consensus Estimate of $1.21, courtesy of robust oil and gas prices along with healthier fuel margins.

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 earnings release.

The Zacks Consensus Estimate for fourth-quarter earnings of $1.05 has been revised downward over the last 30 days. Despite downward revisions, the bottom line reflects growth of 19.3% from the year-ago quarter.

Further, the Zacks Consensus Estimate calls for quarterly revenues of $74.2 billion, showing an 11.5% rise from the prior-year quarter.

Exxon Mobil Corporation Price and EPS Surprise


Exxon Mobil Corporation Price and EPS Surprise | Exxon Mobil Corporation Quote

Factors to Consider

Through fourth-quarter 2018, the West Texas Intermediate (WTI) crude plunged from a multi-year high of $76.40 a barrel in early October to below $45 in late December, per the U.S. Energy Information Administration.  

The decline in crude price along with pipeline bottleneck problem in some of the prolific domestic shale plays may affect ExxonMobil’s upstream operations in the United States. For upstream operations in the domestic region, the Zacks Consensus Estimate for after-tax earnings stands at $703 million, down from $7,061 million a year ago.

As per data from British energy giant BP plc (BP), refining marker margins in the U.S. North West Coast and U.S. Mid-West were considerably lower during fourth-quarter 2018 as compared to the prior two quarters. Thus, lower domestic refining margins could hurt ExxonMobil’s downstream businesses in America. For the largest publicly traded energy firm’s downstream operations in the United States, the Zacks Consensus Estimate for after-tax earnings stands at $480 million, lower than $961 million in the July-to-September quarter and $918 million in the prior-year quarter.

Earnings Whispers

Our proven model does not conclusively show that ExxonMobil is likely to beat estimates this 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) for this to happen. 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 -6.86%. This is because the Most Accurate Estimate is pegged at 98 cents, while the Zacks Consensus Estimate stands at $1.05. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.  

Zacks Rank: ExxonMobil carries a Zacks Rank #5 (Strong Sell). Please note that we caution investors against stocks with a Zacks Rank #4 (Sell) 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 ExxonMobil, here are a few firms that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat this quarter:

Ensco plc ESV, a leading offshore contract driller, has an Earnings ESP of +1.77% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Southwestern Energy Company SWN, based in Houston, TX, with both upstream and midstream operations, has an Earnings ESP of +2.32% and holds a Zacks Rank #3.

Fort Worth, TX-based Range Resources Corp RRC, an upstream energy firm, has an Earnings ESP of +4.46% and a Zacks Rank #3.

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