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5 Top-Ranked Oil Stocks That Consistently Beat Earnings

Nilanjan Choudhury

We are almost done with Q4 earnings season, with results on board from 484 S&P 500 members that combined account for 98.7% of the index’s total market capitalization.

According to our latest Earnings Trends report, overall earnings for the companies that have already reported are up 7.4% from the same period last year on 4.9% higher revenues, with 68.4% positive earnings surprises and 54.1% beating revenue estimates.

Energy Earnings Finally on the Up

Following 8 back-to-back quarters of earnings declines, analysts said that the sector was likely to get better in the fourth quarter and clock its first positive earnings growth after 2 years. With estimate revisions going up following OPEC’s Algeria grandstand, the Oil/Energy sector’s earnings were expected to improve 8.8% from the fourth quarter 2015 levels.

True to the predictions, the sector has come out swinging. For the 97.2% sector components on the S&P 500 index that have reported Q4 results, total earnings are up 19.0% on 2.5% higher revenues. While 65.7% of the companies have been successful in beating earnings estimates, 62.9% of them have come ahead of top-line expectations.

The Oil/Energy sector’s positive growth largely reflects better-than-expected quarterly profit from bellwether ExxonMobil Corp. XOM, which more than offset smaller rival Chevron Corp.’s CVX disappointing Q4 numbers.

Earnings Beat: A Powerful Driver of Stock Movement

Investors always try to prepare themselves ahead of time and look for stocks that are likely to come up with a stellar performance. After much brainstorming, Wall Street analysts project earnings of companies. These estimates act as investment leads.

A positive earnings surprise or earnings beat is typically the case when actual or reported earnings come in above the consensus estimate. Historically, if a company’s earnings manage to beat market expectations, its stock surges post release.

While not every company that posts positive earnings surprises, witnesses a gain in stock price, studies show that on an average, earnings beats drive strong returns in share prices for several weeks following the report. Picking out and investing in such stocks can boost your portfolio returns.

Earnings Surprise History Is Important

With a number of energy firms outperforming Q4 estimates, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver attractive returns.

However, a history of positive earnings surprise generally works as a catalyst in sending a stock higher. It indicates the company’s ability to surpass the estimates. So, investors take it in their consideration while betting on the stock with the expectation that the company will do the same trick to outpace the estimates in the upcoming release.

The Zacks Rank, which justifies a company’s strong fundamentals, can also come in really handy.

Finally, the chosen ones have VGM Score less than or equal to B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

5 Stocks to Invest In

McDermott International Inc. MDR: Incorporated in 1959, Houston, TX-based McDermott International is an engineering and construction company, solely focused on the offshore oil and gas business.

Zacks Rank: #2

VGM Score: ‘A’

Average EPS Surprise in the Last 4 Quarters: 512.50%

PBF Logistics L.P. PBFX: Parsippany, NJ-based PBF Logistics operates refined petroleum products storage and transporting facilities.

Zacks Rank: #1

VGM Score: ‘B’

Average EPS Surprise in the Last 4 Quarters: 17.80%

Halcón Resources Corp. HK: An exploration and production company headquartered in Houston, TX, Halcón Resources focuses primarily on onshore liquids-rich assets in the U.S.

Zacks Rank: #2

VGM Score: ‘B’

Average EPS Surprise in the Last 4 Quarters: 556.28%

Parker Drilling Co. PKD: Headquartered in Houston, TX, Parker Drilling is a supplier of contract drilling, and drilling-related services and rental tools to the worldwide energy industry.

Zacks Rank: #2

VGM Score: ‘B’

Average EPS Surprise in the Last 4 Quarters: 13.78%

Seadrill Partners LLC SDLP: A London-based limited liability company, Seadrill Partners is an owner and operator of offshore drilling rigs.

Zacks Rank: #2

VGM Score: ‘A’

Average EPS Surprise in the Last 4 Quarters: 4.87%

Bottom Line

Historical earnings surprise can be viewed as a key metric for share price outperformance and can greatly increase your odds of grabbing big winners.

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PBF Logistics LP (PBFX): Free Stock Analysis Report
 
McDermott International, Inc. (MDR): Free Stock Analysis Report
 
Chevron Corporation (CVX): Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM): Free Stock Analysis Report
 
Parker Drilling Company (PKD): Free Stock Analysis Report
 
Halcon Resources Corporation (HK): Free Stock Analysis Report
 
Seadrill Partners LLC (SDLP): Free Stock Analysis Report
 
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