Is A Beat In Store For Phillips 66 (PSX) In Q3 Earnings?

Leading refining player Phillips 66 (NYSE:PSX) is expected to report third-quarter 2017 results on Oct 27, before market opens.

The company has an impressive earnings surprise history. Phillips 66 beat the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive earnings surprise of 433.14%.

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

Which Way are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company before earnings release.

The Zacks Consensus Estimate of $1.60 for the third quarter has seen one upward revision and one downward revision by firms in the last seven days. It reflects year-over-year growth of 52.4%.

Further, analysts polled by Zacks expect revenues of $2,994 million for the impending quarter, up 35.8% from the year-ago quarter.

Earnings Whispers

Our proven model shows that Phillips 66 is likely to beat on earnings this time around, as it has the right combination of the two key ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.43%. This is because the Most Accurate estimate is pegged at $1.64, while the Zacks Consensus Estimate is at $1.60. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Phillips 66 carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating on earnings. The combination of Phillip 66’s favorable Zacks Rank and Earnings ESP makes us confident about an earnings beat.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

Factors Likely to Influence Earnings

The company has plans to allocate money for more profitable business units like Midstream and Chemicals instead of extensive refining and marketing operations. Midstream business is in high demand in the central United States, due to increasing requirement for fresh pipeline and infrastructure properties in the flourishing shales. Moreover, improving petrochemical demand should call for more chemical business in the United States. Such decisions reflect the company’s efficiency, which would be reflected in current quarter’s operations.

We appreciate the company’s decision to invest $1.3 billion out of the total 2017 capital budget of $2.3 billion in growth projects.

However, the company’s free cash flow has been negative over the last two years, reflecting weak business operations. Hence, its ability to pay dividends is at risk. Since the beginning of 2012, there has been exponential increase in long-term debt, reflecting Phillips 66’s weak balance sheet.

Q3 Stock Price Performance

During the reporting quarter, pricing chart reveals that Phillips 66’s shares have outperformed the industry. During the aforesaid period, the company’s shares have returned 10.7% compared with the industry’s 10.5% increase.

Other Stocks to Consider

Here are some firms that you may want to consider on the basis of our model. These have the right combination of elements to beat earnings this quarter.

Noble Midstream Partners LP (NYSE:NBLX) , headquartered in Houston, TX, has diversified energy infrastructure properties. The company has an Earnings ESP of +1.91% and boasts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tesoro Corporation (NYSE:ANDV) , based in San Antonio, TX, operates as the refiner and marketer of petroleum products. The company has an Earnings ESP of +5.02% and carries a Zacks Rank #3.

Gulfport Energy Corporation (NASDAQ:GPOR) , headquartered in Oklahoma City, OK, owns and operates mature oil and gas properties in the Louisiana Gulf Coast area. The company has an Earnings ESP of +0.97% and carries a Zacks Rank #3.

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