Will Western Refining (WNR) Miss Q1 Earnings? - Analyst Blog

Energy downstream operator Western Refining Inc. WNR is set to release its first quarter 2014 results before the opening bell on Tuesday, May 6.

In the preceding three-month period, Western Refining delivered a positive 1.69% earnings surprise – the second outperformance in the last 3 quarters – buoyed by a rise in throughput volumes. Let's see how things are shaping up for this announcement.

Factors to Consider This Quarter

In particular, narrowing crack spreads – the conventional measure of refining income – is expected to weigh on Western Refining's profitability and valuation. Moreover, with refiners being buyers of crude, an increase in oil prices can squeeze their profitability. As a result, with the commodity's price having hovered around $100 per barrel for most of the first quarter, we expect Western Refining's margins to be negatively impacted due to a rise in the cost of oil it buys to make gas, jet fuel and other refined products.

In fact, the Zacks Consensus Estimate for the first quarter has moved down by 13 cents to a profit of 41 cents per share over the last 30 days as the tendency for a downward estimate revision was more obvious.

Earnings Whispers?

Our proven model does not conclusively show that Western Refining is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately, this is not the case here, as elaborated below.

Zacks ESP: Western Refining's earnings ESP is 0.00%, as the Most Accurate estimate and the Zacks Consensus Estimate both stand at 41 cents.

Zacks Rank: Western Refining carries a Zacks Rank #3 (Hold), which when combined with a 0.00% ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

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

Unit Corp. UNT has an Earnings ESP of +2.70% and holds a Zacks Rank #1 (Strong Buy). Unit Corp. will report first quarter earnings on May 8.

Athlon Energy Inc. ATHL has an Earnings ESP of +3.70% and holds a Zacks Rank #2 (Buy). Athlon Energy will report first quarter earnings on May 6.

Callon Petroleum Co. CPE has an Earnings ESP of +25.00% and holds a Zacks Rank #2 (Buy). Callon Petroleum will report first quarter earnings on May 8.