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What’s in Store for Andeavor (ANDV) This Earnings Season?


Andeavor ANDV is set to release fourth-quarter 2017 results after the closing bell on Feb 15.

San Antonio, TX-based downstream operator— whose peers includes Marathon Petroleum MPC, Valero Energy VLO and Phillips 66 among others — reported a negative earnings surprise of 10.89% in the preceding quarter amid high costs along with lower retail and branded fuel margins.

However, coming to earnings surprise history, the company has a good record. The company topped estimates in three of the last four quarters with an average positive surprise of 37.8%.

Andeavor Price and EPS Surprise

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 the earnings release.

The Zacks Consensus Estimate for the current-quarter earnings has been revised downward by 11.7% over the last 30 days. However, it reflects growth from the year-ago quarter loss of 2 cents.

Further, analysts polled by Zacks expect revenues of $10,789 million compared with $6,652 million in the prior-year quarter.

Factors at Play

During the quarter, the downstream operator completed the acquisition of Western Refining which will bolster Andeavor’s assets and enhance its geographic footprint in the prolific Permian Basin, marking double-digit earnings growth in 2018.

However, for fourth-quarter 2017, the company’s refining segment is likely to impact its bottom line adversely. The recent oil price rally has not only made commodity expensive for refiners but also widened the crack spread and lowered refining margins. In fact, the company released an update of its operations few weeks back, wherein it expects its refining margins to reduce by $135 million approximately. The Zacks Consensus Estimate for the gross refining margins per barrel for Mid-Continent stands at $14.59 compared with $17.27 in the prior quarter. For Pacific-Northwest, the margin is estimated to be $7.87 per barrel, reflecting a decline from $15.03 per barrel in the prior quarter.

Andeavor expects to incur an operating loss of $50-$55 million in its refining segment. This reflects a massive decline from the operating income of $762 million in the prior quarter and $43 million in the year-ago quarter. The Zacks Consensus Estimate forecasts the total refining throughput to average 1,094 thousand barrels per day (MBbl/d) compared with 1,141 MBbl/d in the prior-year quarter. However, the figure compares favorably with the 841 MBbl/d in fourth-quarter 2016.

Nevertheless, the negative impact of the refining segment is expected to be partly offset by strong results from marketing and logistics segments. The company expects the operating income from the Logistics segment to be around $190-$195 million, as compared with $164 million in the prior quarter and $123 million in the year-ago quarter. Further, the company expects its marketing segment to generate an operating income of around $235-$240 million compared with $175 million and $169 million in the prior quarter and fourth-quarter 2016, respectively.

Earnings Whispers

Our proven model does not conclusively show that Andeavor is likely to beat earnings estimates 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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, is -0.19%. This is because the Most Accurate estimate is $1.13 whereas the Zacks Consensus Estimate is pegged at $1.18.

Zacks Rank: Andeavor currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Though a Zacks Rank #1 increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.

Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions..

Stock to Consider

While an earnings beat looks uncertain for Andeavor, here is a firm from the same industry that you may want to consider as it has the right combination of elements to post an earnings beat this quarter.

EnLink Midstream ENLC has an Earnings ESP of +8.77% and a Zacks Rank #3. The Texas-based company is anticipated to release fourth-quarter earnings on Feb 20.

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