As the fate of the Energy sector is tied to crude and natural gas prices, the major macro-economic issues that will most likely influence results this earning season are United States’ trade tensions with China and sanctions on Tehran.
Q2 Snapshot of Oil & Gas Prices
The second-quarter pricing scenario of West Texas Intermediate (WTI) crude was weaker than the year-ago period. However, the commodity’s aggregate price in the June quarter showed some sequential improvement.
Although the tightening of global crude supplies owing to sanctions on Iranian oil export by the United States drove WTI crude, the slowdown of global economy, fueled by intensifying trade tensions between Washington and Beijing, hurt oil demand. In April 2019, the United States tightened the ban on oil from Tehran as it expressed its unwillingness to extend sanction waivers on several countries beyond May 2.
Natural gas prices were weaker as compared to the June quarter of 2018. It seems that the tariff war between the two big economies has hurt clean energy demand as well.
How Did the Energy Sector Fare?
The drop in oil and natural gas prices is expected to hurt earnings of energy stocks. In comparison with more than 115% improvement in year-over-year earnings for the June quarter of 2018 for the Energy sector, earnings are expected to fall 0.6% this time around.
With this, the Energy sector is poised to see two consecutive quarters of earnings deterioration after strong earnings growth seen in each of the four quarters of 2018.
Picking the Right Stocks
Although the business scenario has been mostly unfavorable, there are a few stocks that are likely to beat estimates. However, screening such stocks from too many participants is not easy. A simple way to streamline the list is by selecting stocks with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks with this combination have 70% chances of delivering a positive earnings surprise.
Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
Using this proven model, we have highlighted four Energy stocks that are likely to beat on earnings in their upcoming releases.
Headquartered in Houston, TX, Helix Energy Solutions Group Inc HLX is primarily a provider of specialty services to energy players with operations in offshore plays.
Helix Energy, scheduled to report Q2 results on Jul 24, has an Earnings ESP of +7.61% and a Zacks Rank #1. The company also delivered a positive earnings surprise of 150% in the last reported quarter.
Helix Energy Solutions Group, Inc. Price and EPS Surprise
Helix Energy Solutions Group, Inc. price-eps-surprise | Helix Energy Solutions Group, Inc. Quote
Enterprise Products Partners LP EPD, headquartered in Houston, TX, is a leading midstream energy firm in North America. Although prices of both oil and gas declined, production of the commodities continue to grow which should have boosted demand for pipeline assets in the June quarter of this year.
The partnership, expected to report Q2 results on Jul 31, has an Earnings ESP of +5.29% and a Zacks Rank #2. Enterprise Productsdelivered a positive earnings surprise of 21.3% in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
Enterprise Products Partners L.P. Price and EPS Surprise
Enterprise Products Partners L.P. price-eps-surprise | Enterprise Products Partners L.P. Quote
Headquartered in Houston, TX, W&T Offshore Inc. WTI is primarily engaged in exploration and production of oil and natural gas. The company has an Earnings ESP of +22.45% and a Zacks Rank #3. The company beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average positive surprise being 21.9%.
W&T Offshore, Inc. Price and EPS Surprise
W&T Offshore, Inc. price-eps-surprise | W&T Offshore, Inc. Quote
Headquartered in Houston, TX, Dril-Quip Inc DRQ is a leading designer and manufacturer of drilling equipment for operations in the onshore and offshore plays. The stock, carrying a Zacks Rank #3, has an Earnings ESP of +285.70%.
Dril-Quip, Inc. Price and EPS Surprise
Dril-Quip, Inc. price-eps-surprise | Dril-Quip, Inc. Quote
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