Markets are more than halfway through the Q2 earnings season, with 61% S&P 500 members having reported results as of Wednesday, Jul 31.
Energy Earnings: Not Looking at a Great Quarter
The Oil/Energy sector has been off to a disastrous start. For the 43.3% sector components on the S&P 500 Index that have reported Q2 results, total earnings plunged 96.4% on 3.1% lower revenues. However, the EPS and revenue beats percentages have been the bright spots in an otherwise gloomy environment. While 76.9% of the companies have been successful in beating earnings estimates, 69.2% have outperformed the top line.
Let's take a look at how oil and natural gas prices behaved during the second quarter of 2019.
A Combination of Lower Oil & Gas Prices
So, how does the price of oil and gas compare with the year-ago period?
According to the U.S. Energy Information Administration, or EIA, WTI prices started the second quarter of 2018 around $63 per barrel and exited the period at $74 per barrel. This year, at the beginning of the second quarter, prices started near the same price as last year, at $62 a barrel. However, the price fell to around $58 per barrel at the end of June.
The news is not rosier on the natural gas front either.
In Q2 of last year, natural gas prices started at around $2.7 per MMBtu and rose steadily to end June over $2.9 per MMBtu. Coming to 2019, the fuel was trading at $2.7 per MMBtu at the beginning of April but moved sharply lower through the quarter to end at $2.3 per MMBtu.
Companies Across the Board to Suffer
Taking into account the commodity price drop, the picture looks rather downbeat for the Q2 earnings season and are validated by the sector’s dismal earnings picture so far in the quarter.
Per the latest Earnings Trends report, Energy is one of the three sectors likely to experience double-digit earnings decline in the second quarter. Per our expectations, the sector’s earnings are expected to fall 36.2% from second-quarter 2018.
Bet on Impressive Beat Ratios
Pricing woes do not necessarily indicate that all energy scrips have lost potential. In fact, the beat ratios so far are suggestive of encouraging numbers this season.
Investing in companies with an earnings beat potential can fetch handsome returns for investors. This is because a stock generally surges on an earnings beat.
How to Identify Such Stocks?
But with a wide range of energy firms thronging the investment space, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver better-than-expected earnings.
While it is impossible to be sure about such outperformers, you could narrow down the list of choices by looking at stocks that have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement.. It 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.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Cheniere Energy, Inc. LNG is primarily engaged in businesses related to liquefied natural gas. It is based in Houston, TX. Cheniere Energy has an earnings ESP of +88.46% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company’s second-quarter earnings release is due on Aug 8.
Cheniere Energy, Inc. Price and EPS Surprise
Cheniere Energy, Inc. price-eps-surprise | Cheniere Energy, Inc. Quote
Sunoco LP’s SUN prime business comprises the distribution of motor fuel to roughly 10,000 customers that include independent dealers, commercial customers, convenience stores as well as distributors. It is based in Dallas, TX. Sunoco has an Earnings ESP of +14.64% and a Zacks Rank #2.
The downstream operator is slated to release its second-quarter results on Aug 7.
Sunoco LP Price and EPS Surprise
Sunoco LP price-eps-surprise | Sunoco LP Quote
Callon Petroleum Company CPE is solely focused on exploration, and production of oil and gas resources in the Permian Basin. It is based in Houston, TX. Callon Petroleum has an Earnings ESP of +0.84% and a Zacks Rank #3. The company is slated to release its second-quarter results on Aug 6.
Callon Petroleum Company Price and EPS Surprise
Callon Petroleum Company price-eps-surprise | Callon Petroleum Company Quote
Roan Resources, Inc. ROAN is an oil and gas exploration and production company that primarily operates in the Merge, SCOOP and STACK plays in Oklahoma. It is based in Oklahoma City, OK. Roan Resources has an Earnings ESP of +14.71% and a Zacks Rank #3. The company’s second-quarter earnings release is due on Aug 7.
Roan Resources, Inc. Price and EPS Surprise
Roan Resources, Inc. price-eps-surprise | Roan Resources, Inc. Quote
NuStar Energy L.P. NS engages in the transportation and storage of crude oil as well as refined products in the U.S., the Netherlands Antilles, Canada, Mexico, and the U.K. It is based in San Antonio, TX. NuStar Energy has an Earnings ESP of +14.58% and a Zacks Rank #3. The partnership is slated to release its second-quarter results on Aug 8.
NuStar Energy L.P. Price and EPS Surprise
NuStar Energy L.P. price-eps-surprise | NuStar Energy L.P. Quote
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