U.S. Markets closed

5 Oil Stocks Likely to Stand Out in Q1 with Stellar Earnings

Zacks Equity Research

The energy sector is one of the prime contributors to the S&P 500 index and hence investors give utmost importance to this sector, especially ahead of a reporting cycle. Good news is that the energy sector is expected to progress from a modest loss in the year-earlier period to positive earnings in the January to March quarter of this year. In other words, the sector is expected to see great growth in terms of revenues and earnings year over year.

This return to the profit path keep positive sentiments for the energy space alive ahead of Q1 releases from oil giants like Exxon Mobil Corp. XOM, Chevron Corp. CVX, Royal Dutch Shell plc RDS.A and BP Plc BP.

Stable Oil & Gas Prices

WTI crude price displayed significant improvement in first-quarter 2017, on a year-over-year basis. In fact, we noted substantial increase in average oil prices in the first two months this year.

According to data provided by the U.S Energy Information Administration (EIA), the average WTI crude price in January and February was $52.50 and $53.47 per barrel, respectively, compared with $31.68 and $30.32 per barrel a year ago.

This massive improvement in the commodity’s price from the mid-Feb 2016 multi-year low level of $26.21 per barrel came on the back of OPEC’s historical production cut agreement signed on Nov 30, 2016. No doubt, the deal was one of the most effective measures to recover oil prices amid plentiful supply. However, Mar 2017 showed a comparatively bearish trend in oil prices owing to the resurgence in output by U.S. shale producers. 

We have also noted significant improvement for the price of natural gas. The average commodity price in January and February was $3.30 and $2.85 per Million Btu, respectively, compared with $2.28 and $1.99 per Million Btu a year ago.

Energy Sector to Witness Highest Q1 Earnings Improvement

Per the latest Earnings Preview, among all the 16 Zacks sectors, energy is expected to witness the highest aggregate dollar amount of earnings improvement. We expect the sector to earn $8.1 billion in the first quarter of this year against a loss of $1.6 billion in the prior-year quarter.  

Moreover,revenue for the Oil/Energy sector is expected to improve almost 33% year over year compared with an unimpressive 2% growth during fourth-quarter 2016. Most importantly, the top-line growth for the Oil/Energy is also likely be the highest for the first-quarter 2017 among all the 16 Zacks sectors.

Margins are predicted to increase 4.6% year over year compared with only 0.3% expansion during the October–December quarter of 2016. Most importantly, when 11 Zacks sectors belonging to the S&P 500 index are projected to show a decline in margin growth for first-quarter 2017, positive anticipated growth for the Oil/Energy sector turns out impressive. Also, the sector’s margin growth is predicted to be the highest among all the 16 Zacks sectors defining the S&P 500 index.  

The table below shows what is expected from the different sectors in Q1 compared with what was achieved in the preceding quarter.

Potential Gainers in Q1

The oil and gas price improvement should contribute to earnings of exploration and production companies as the firms could sell the commodities at considerably higher prices.

The ramping up of drilling activities during first-quarter 2017 is clearly visible from the monthly rig count data of Baker Hughes Inc. BHI. There has been an increase in rig count in each of the three months of the quarter.

Higher exploration activities should call for more transportation and storage of oil and gas and hence could be beneficial for midstream energy companies also.

Consider These 5 Stocks for Stellar Earnings Growth

Given the plethora of issues faced by the Oils/Energy sector, picking the most investment-worthy stock is undoubtedly a daunting task. This is where the Zacks methodology come to the rescue. One could narrow down the list using the positive Earnings ESP as a guide, along with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Headquartered in Denver, CO Antero Resources Corporation AR is involved in the development and exploitation of oil and gas resources in the U.S.

The company is expected to release first-quarter results on Apr 26. We expect Antero Resources to surpass expectations as it has an Earnings ESP of + 100.00% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cheniere Energy Partners LP CQP by virtue of its interest in affiliate Sabine Pass LNG L.P is the owner and operator of regasification units at the Sabine Pass liquefied natural gas (LNG) terminal. More expected production of natural gas during Q1 could call for more regasification activities.

The partnership will likely release quarterly results on May 4. We expect Cheniere Energy to surpass expectations as it has an Earnings ESP of +48.65% and a Zacks Rank #3.

Headquartered in Fort Worth, TX Emerge Energy Services LP EMES distributes silica sand which is used as an input for hydraulic fracturing of oil and natural gas wells. As plenty of drillers gathered on oil acres for drilling during Q1, there could be more demand for hydraulic fracturing activities. This development is anticipated to benefit the partnership.

Emerge Energy is anticipated to report quarterly report on May 9, 2017. We expect the partnership will beat the Zacks Consensus Estimate as it carries a Zacks Rank #2 and an Earnings ESP of +14.29%. 

RSP Permian Inc. RSPP, headquartered in Dallas, TX, is involved in the development and production of unconventional oil and natural gas reserves in the Permian Basin of West Texas.

The company, with a Zacks Rank #2 and an Earnings ESP of +13.33%, is likely beat the Zacks Consensus Estimate in the first quarter. The company is anticipated to release its financial results on May 1, 2017.

Headquartered in Calgary, Alberta, Enbridge Inc. ENB is a leading energy infrastructure company.

The company, with a Zacks Rank #3 and an Earnings ESP of + 3.45%, is anticipated to surpass the Zacks Consensus Estimate in the first quarter. The firm is projected to report its financial results on May 11, 2017.

Zacks’ Best Private Investment Ideas

While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.  Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Click here for Zacks' private trades >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Baker Hughes Incorporated (BHI): Free Stock Analysis Report
Emerge Energy Services LP (EMES): Free Stock Analysis Report
BP p.l.c. (BP): Free Stock Analysis Report
Chevron Corporation (CVX): Free Stock Analysis Report
Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report
Exxon Mobil Corporation (XOM): Free Stock Analysis Report
Enbridge Inc (ENB): Free Stock Analysis Report
Cheniere Energy Partners, LP (CQP): Free Stock Analysis Report
RSP Permian, Inc. (RSPP): Free Stock Analysis Report
Antero Resources Corporation (AR): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research