Can Higher Margins Aid HollyFrontier's (HFC) Q2 Earnings?

Petroleum refiner and marketer HollyFrontier Corporation (NYSE:HFC) is scheduled to release second-quarter 2019 results before the opening bell on Thursday, Aug 1. The current Zacks Consensus Estimate for the quarter under review is a profit of $1.67 per share on revenues of $4.6 billion.

In the last reported quarter, the company beat the consensus mark, buoyed by strong performance from the midstream unit.

As far as earnings surprises are concerned, the Dallas, TX-based downstream operator has a good record, having gone past the Zacks Consensus Estimate thrice in the last four reports. This is depicted in the graph below:

Investors are keeping their fingers crossed and hoping that HollyFrontier can surpass earnings estimate this time around.

Let’s delve deeper and find out the factors impacting the results.

Factors to Consider This Quarter

Certain factors which have a strong influence on HollyFrontier’s Refining segment are sending mixed signals with regard to the company’s results in the upcoming quarter.

The Zacks Consensus Estimate for gross refining margin in second quarter 2019 is $16.78 a barrel, up from $16.57 a year earlier and $12.74 in the first quarter. In particular, HollyFrontier’s Mid-Continent region – the company’s largest – is likely to report a very impressive margin of $14.60 a barrel.

Meanwhile. analysts polled by Zacks envision refined products sales volume to improve from 454 thousand barrels per day (mbpd) to 465 mbpd year over year. In the first quarter, HollyFrontier averaged around 423 mbpd.

However, HollyFrontier is likely to experience a 3.8% year-over-year decrease to net operating margin due to lower throughput volume, which might decline to about 478 mbpd from just over 490 mbpd last year. As a result, the company’s second-quarter income from the Refining segment – the main contributor to HollyFrontier earnings – is pegged at $339 million, compared with $429 million in the corresponding period of 2018.

What Does Our Model Say?

Our proven model too does not conclusively predict that HollyFrontier will beat the Zacks Consensus Estimate this quarter. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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 0.00%.

Zacks Rank: HollyFrontier currently has a Zacks Rank #3, which increases the predictive power of ESP. But we need to have a positive Earnings ESP to be sure of the positive surprise.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Stocks to Consider

While earnings beat looks uncertain for HollyFrontier, here are some companies from the energy space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this quarter:

TC Energy Corporation (TSX:TRP) has an Earnings ESP of +0.98% and a Zacks Rank #2 (Buy). The company is anticipated to release earnings on Aug 1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Encana Corporation (NYSE:ECA) has an Earnings ESP of +5.56% and is Zacks #3 Ranked. The company is anticipated to release earnings on Jul 31.

Independence Contract Drilling, Inc. (NYSE:ICD) has an Earnings ESP of +18.18% and a Zacks Rank #3. The company is anticipated to release earnings on Aug 1.

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