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Why Scorpio Tankers Stock Popped 11%

By Rich Smith - Updated Apr 27, 2017 at 5:52PM

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Earnings... could have been worse!

What happened

Shares of oil-tanker operator Scorpio Tankers (NYSE: STNG) soared in Thursday trading, closing the day up 11.2%.

So what

This being earnings season, you might suspect that an earnings report had something to do with the sudden enthusiasm for Scorpio stock -- and you'd be right. And yet, the news at Scorpio Tankers wasn't exactly great.

In an earnings report released after close of trading on Wednesday, Scorpio reported a reversal of last year's Q1 profit of $0.17 and instead reported a $0.07 per-share loss for the first quarter of 2017. Revenues for the quarter were $122.8 million, down 26% year over year.

Man supporting stock-price arrow.

Scorpio stock got a bit of support from rising tanker rates in Q1. Image source: Getty Images.

Now what

Here's the thing: Wall Street analysts had been telling investors to prepare for even worse news. Consensus estimates for Scorpio predicted a loss of $0.10 per share this past quarter, and sales of less than $120 million. Thus, despite Scorpio's news being not very good, neither was it as bad as it might have been.

Now, investors are applauding the "earnings beat." As for what comes next, analysts are still forecasting about a $0.03 per-share loss for this year. But given that Scorpio just beat estimates for Q1 by $0.03, it's starting to look possible that Scorpio will actually break even this year.

There's only one thing I'd counsel Scorpio bulls to be beware of at this point: Keep a close eye on the Baltic Clean Ship Index, which tracks trends in lease rates on the oil tankers like the ones Scorpio operates. Those rates were steadily rising through much of Q1, which may explain Scorpio's better-than-expected performance.

Rates turned around late in March, however, and have been on a just-as-steady downturn ever since. If that trend continues, it could sink any hope of Scorpio enjoying a profitable year in 2017.

Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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