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The Zacks Analyst Blog Highlights: McGraw-Hill, Exxon Mobil, Chevron, ConocoPhillips and Marathon Oil

Zacks Equity Research

For Immediate Release

Chicago, IL – May 7, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include McGraw-Hill Companies Inc. (MHP), Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), ConocoPhillips (COP) and Marathon Oil Corporation (MRO).

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Here are highlights from Monday’s Analyst Blog:

U.S. Crude Supplies Hit Record High

The U.S. Energy Department's weekly inventory release showed that crude stockpiles jumped to their all-time high level, as imports climbed. The report further revealed that within the ‘refined products’ category, gasoline stocks fell, while distillate supplies were up from the week-ago levels. Meanwhile, refiners scaled up their utilization rates by 0.9%.

The Energy Information Administration (EIA) Petroleum Status Report, containing data of the previous week ending Friday, outlines information regarding the weekly change in petroleum inventories held and produced by the U.S., both locally and abroad.

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of petroleum products. It is an indicator of current oil prices and volatility that affect the businesses of the companies engaged in the oil and refining industry.

Analysis of the Data

Crude Oil: The federal government’s EIA report revealed that crude inventories jumped by 6.70 million barrels for the week ending Apr 26, 2013, following a climb of 947,000 barrels in the previous week.

The analysts surveyed by Platts – the energy information arm of McGraw-Hill Companies Inc. (MHP) – had expected crude stocks to go up some 1.4 million barrels. A surge in the level of imports led to the steep stockpile build-up with the world's biggest oil consumer even as refiners improved their utilization rates and domestic production receded from their highest level since 1992.

However, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – were down 1.38 million barrels from the previous week’s level to 49.80 million barrels. Stocks are currently just under the all-time high of 51.86 million barrels reached in January.

Following the weekly inventory increase, at 395.28 million barrels, current crude supplies are 5.2% above the year-earlier level, and comfortably exceed the upper limit of the average for this time of the year. The crude supply cover was up from 26.0 days in the previous week to 26.6 days. In the year-ago period, the supply cover was 25.9 days.

Gasoline: Supplies of gasoline were down for the eleventh time in 12 weeks despite a decline in domestic consumption. The fall in gasoline inventories could be attributed to lower imports and production.

The 1.82 million barrels withdrawal – double the analysts’ projections for a 900,000 barrels decrease in supply level – took gasoline stockpiles down to 215.98 million barrels. Notwithstanding this drawdown, the existing inventory level of the most widely used petroleum product is 3.0% higher than the year-earlier level and is midway through the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) edged up 474,000 barrels last week, compared to analysts’ expectations for an unchanged inventory level. The increase in distillate fuel stocks – the third in as many weeks – could be attributed to higher imports and production, partially offset by stronger demand.

At 115.75 million barrels, distillate supplies are 6.6% below the year-ago level and are in the lower limit of the average range for this time of the year.

Refinery Rates: Refinery utilization was up 0.9% from the prior week to 84.4%.

Zacks Rank

A bullish data from the EIA generally acts as a positive catalyst for crude prices and buoy producers, such as Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and ConocoPhillips (COP). With an improvement in the companies’ ability to generate positive earnings surprises, they can then move higher from their current Zacks Rank #3 (Hold).


Earnings Preview: Marathon Oil

Leading integrated oil and gas firm Marathon Oil Corporation (MRO) is scheduled to report its first-quarter 2013 results on Tuesday, May 7, after the market closes.

In the fourth quarter of 2012, Marathon Oil delivered a negative 19.12% earnings surprise due to higher exploration cost. In fact, Marathon Oil has delivered negative earnings surprises in 3 of the last 4 quarters, with an average miss of 14.55%. Let’s see how things are shaping up prior to this announcement.

Factors to Consider This Quarter

As is the case with other exploration and production companies, Marathon Oil’s results are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company’s revenues, earnings and cash flows.

Additionally, Marathon Oil’s Droshky development in deepwater Gulf of Mexico (that started production in Jul 2010) has seen its reservoir performance fall short of expectations. This is likely to result in a faster production decline and eventually reduce the amount of total recoverable resources.

Moreover, the transfer of the downstream assets (post-split) has left Marathon Oil with a less diversified business. As a result, the business risk profile of the reorganized Marathon Oil is weaker than that of the pre-spin-off company.

Earnings Whispers?

Our proven model does not conclusively show that Marathon Oil is likely to beat the Zacks Consensus Estimate in the first quarter. That is because a stock needs to have both a positive earnings Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as elaborated below.

Negative Zacks ESP: This is because the Most Accurate estimate stands at 71 cents while the Zacks Consensus Estimate is higher at 72 cents. This results in a difference of -1.39%.

Zacks Rank #3 (Hold): Marathon Oil’s Zacks Rank #3, however, increases the forecasting power of ESP. That said we also need to have a positive ESP to be confident of an earnings surprise call.

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

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Read the analyst report on MHP

Read the analyst report on XOM

Read the analyst report on CVX

Read the analyst report on COP

Read the analyst report on MRO

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