Late last month, independent refiner Tesoro Corporation (TSO) announced its financial results for the second quarter ended June 30, 2010.
Now that the Wall Street analysts have had some time to digest the quarterly performance of Tesoro, they are weighing in their estimate revisions. Below we cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for the outlook for the stock.
Earnings Review
On July 28, 2010, Tesoro reported second-quarter 2010 results that came in better than expected, buoyed by stronger distillate margins and improved marketing realizations, somewhat offset by decreased gasoline margins and lower throughput.
Net earnings per share, excluding certain benefits, came in at 30 cents, beating the Zacks Consensus Estimate of 18 cents. In the year-ago period, the Texas-based company reported a loss per share of 33 cents.
After including the after-tax special items, earnings per share for the second quarter 2010 came in at 47 cents.
The company generated revenues of $5.14 billion in the quarter, up 23.0% from the year-ago quarter’s revenues of $4.18 billion. The reported quarter results surpassed the Zacks Consensus Estimate of $4.88 billion.
(Read our full coverage on this earnings report: Tesoro Moves Beyond Expectations)
Agreement of Estimate Revisions
The following table reflects a strong positive agreement among the analysts regarding Tesoro’s outlook. In particular, we see a notable number of estimate revisions over the past 30 days, indicating that the revisions were in response to the company’s second quarter earnings release.
Out of 18 analysts covering the stock, 13 have revised their estimates for 2010 upward, while 2 have gone in the opposite direction. Looking forward to 2011, the trend is more or less similar. Out of 17 analysts, 8 hiked their estimates compared to 2 negative revisions.
Estimates are up for the September quarter of 2010 as well. For the current quarter, 9 of the 18 analysts have increased their estimates over the last 30 days, as compared to 3 downward revisions.
This uptrend in estimate revisions reflects strong near-term financial results with the expectation that cash flows will be driven by fundamental improvement in the business. We see ample room for margin gains over the coming months, especially given the improvement in industry spreads, positive signs of economic recovery, and realizations from cost cutting initiatives.
Magnitude of Estimate Revisions
As a result of the analysts revising estimates over the past 30 days, the Zacks Consensus Estimates for fiscal 2010 and 2011 have gone up 12 cents (from a loss of 64 cents to a loss of 52 cents) and 11 cents (from $1.22 to $1.33), respectively. Meanwhile, estimate for the September 2010 quarter is up by 6 cents. The increases are based on impressive margin capture rates, lower costs, as well as an improvement of the sweet/sour crude spread.
Our Recommendation
Despite the robust second quarter results, our short-term as well as long-term recommendations on Tesoro remain Hold (Zacks #3 Rank) and Neutral, respectively.
Against the backdrop of improved overall refining margins and the company’s exposure to the premium margin West Coast region, income from Tesoro’s refining operations are expected to improve.
However, we believe that the outlook for domestic refiners still remains bleak and Tesoro is not immune to the headwinds of the industry. While there have been some signs of economic improvement, high unemployment in California and excess refining capacity in U.S. will continue to weigh on the company’s margins.
As a result of these counterbalancing factors, we maintain our cautious view on Tesoro.
Now that the Wall Street analysts have had some time to digest the quarterly performance of Tesoro, they are weighing in their estimate revisions. Below we cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for the outlook for the stock.
Earnings Review
On July 28, 2010, Tesoro reported second-quarter 2010 results that came in better than expected, buoyed by stronger distillate margins and improved marketing realizations, somewhat offset by decreased gasoline margins and lower throughput.
Net earnings per share, excluding certain benefits, came in at 30 cents, beating the Zacks Consensus Estimate of 18 cents. In the year-ago period, the Texas-based company reported a loss per share of 33 cents.
After including the after-tax special items, earnings per share for the second quarter 2010 came in at 47 cents.
The company generated revenues of $5.14 billion in the quarter, up 23.0% from the year-ago quarter’s revenues of $4.18 billion. The reported quarter results surpassed the Zacks Consensus Estimate of $4.88 billion.
(Read our full coverage on this earnings report: Tesoro Moves Beyond Expectations)
Agreement of Estimate Revisions
The following table reflects a strong positive agreement among the analysts regarding Tesoro’s outlook. In particular, we see a notable number of estimate revisions over the past 30 days, indicating that the revisions were in response to the company’s second quarter earnings release.
Out of 18 analysts covering the stock, 13 have revised their estimates for 2010 upward, while 2 have gone in the opposite direction. Looking forward to 2011, the trend is more or less similar. Out of 17 analysts, 8 hiked their estimates compared to 2 negative revisions.
Estimates are up for the September quarter of 2010 as well. For the current quarter, 9 of the 18 analysts have increased their estimates over the last 30 days, as compared to 3 downward revisions.
This uptrend in estimate revisions reflects strong near-term financial results with the expectation that cash flows will be driven by fundamental improvement in the business. We see ample room for margin gains over the coming months, especially given the improvement in industry spreads, positive signs of economic recovery, and realizations from cost cutting initiatives.
Magnitude of Estimate Revisions
As a result of the analysts revising estimates over the past 30 days, the Zacks Consensus Estimates for fiscal 2010 and 2011 have gone up 12 cents (from a loss of 64 cents to a loss of 52 cents) and 11 cents (from $1.22 to $1.33), respectively. Meanwhile, estimate for the September 2010 quarter is up by 6 cents. The increases are based on impressive margin capture rates, lower costs, as well as an improvement of the sweet/sour crude spread.
Our Recommendation
Despite the robust second quarter results, our short-term as well as long-term recommendations on Tesoro remain Hold (Zacks #3 Rank) and Neutral, respectively.
Against the backdrop of improved overall refining margins and the company’s exposure to the premium margin West Coast region, income from Tesoro’s refining operations are expected to improve.
However, we believe that the outlook for domestic refiners still remains bleak and Tesoro is not immune to the headwinds of the industry. While there have been some signs of economic improvement, high unemployment in California and excess refining capacity in U.S. will continue to weigh on the company’s margins.
As a result of these counterbalancing factors, we maintain our cautious view on Tesoro.
TESORO CORP (TSO): Free Stock Analysis Report
Zacks Investment Research
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