ExxonMobil (XOM): What's In Store This Earnings Season?

Oil giant ExxonMobil Corporation (NYSE:XOM) is expected to report third-quarter 2016 earnings on Oct 28, 2016, before the opening bell.

Last quarter, the company delivered a negative earnings surprise of 35.94%. Nonetheless, ExxonMobil posted an average positive earnings surprise of 8.95% over the last four quarters.

Let’s see how things are shaping up for this announcement.

Factors Likely to Influence this Quarter

ExxonMobil is the world’s best run integrated oil company based on its track record of high return on capital employed. However, the oil pricing environment is currently weaker than the comparable period 2015 and low commodity price might hurt the company’s upstream profit.

However, there has been a ramp up of drilling activities as more rigs are being employed in the U.S. In fact, Baker Hughes Inc. (NYSE:BHI) – the company’s data issued since 1944 is as an important yardstick for energy service providers in gauging the overall business environment of the oil and gas industry – recently declared the rig count for Sep 2016. In the U.S., the total number of rigs increased from the Aug 2016 count owing to a rise in the number of land rigs. This represents the fourth consecutive increase in the U.S. monthly rig count. The improved rig count might be a reflection of increased exploration and production operations, which in turn, is likely to ramp up production. We expect the improved output to drive profit in the company’s upstream business.

In the downstream business, however, the refining operations of the company is expected to display weakness as the retail price of gasoline – the end product of refiners – is lower than the year-ago comparable period.

Earnings Whispers

Our proven model does not conclusively show that ExxonMobil is likely to beat on earnings this quarter. This 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.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 60 cents. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: ExxonMobil currently holds a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, an Earnings ESP of 0.00% makes surprise prediction difficult.

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.

Stocks to Consider

Here are some companies from the energy space which according to our model have the right combination of elements to post an earnings beat this quarter:

Spectra Energy Corp. (NYSE:SE) , which is expected to release third-quarter earnings results on Nov 2, has an Earnings ESP of +12.50% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Enterprise Products Partners LP (NYSE:EPD) has an Earnings ESP of +3.33% and a Zacks Rank #3. The company is expected to release third-quarter earnings results on Oct 27.

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