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Anadarko's Upbeat Guidance Puts These Energy ETFs in Focus

Zacks Equity Research

The energy exploration company, Anadarko Petroleum Corp. (APC) came out with its second-quarter 2014 results on July 29 after the market closed. Results were mixed with adjusted earnings missing the Zacks Consensus Estimate with revenues beating the same. The company raised its projection for average daily sales volume for the full year which in turn built up confidence in the stock.

Q2 Earnings in Focus

Adjusted earnings of $1.32 per share fell shy of the Zacks Consensus Estimate by 1.5% but improved from the year-ago number by 25.7%. The company’s total revenue of $4.44 billion outdid the Zacks Consensus Estimate by 7.6%. Revenues also surged an impressive 26.9% year over year. The revenue rise reflects solid natural gas, crude oil & condensates and liquids sales.

The output guidance is quite upbeat. For 2014, the company raised its sales-volume guidance by 5 million BOE. Bloomberg noted that output in the Rocky Mountains zone, one of the company’s key operational areas, surged about 60% in the quarter under review (read: Anadarko (APC) Takeover Speculation Boosts These ETFs).

ETF Impact

Following the optimistic guidance, Anadarko shares traded in the green in after-hours. Its shares advanced about 0.6% in the key trading session of the following day. Also, the shares added 0.3% after hours on July 30. 
Anadarko has a sizable exposure in many energy funds. However, Market Vectors Unconventional Oil & Gas ETF (FRAK) and iShares U.S. Oil & Gas Exploration & Production ETF (IEO) get the maximum share. Both funds were down less than 1% on July 30, but we have highlighted some of the key points about these ETFs below:

FRAK in Detail

This ETF – a pure play on the unconventional energy space – provides exposure to the unconventional oil and gas segment, which includes coal bed methane, coal seam gas, shale oil & gas, and sands market.

This fund follows the Market Vectors Global Unconventional Oil & Gas Index, holding 62 stocks in the basket. Volume and AUM are quite low for this large cap focused fund while the expense ratio is at 0.54%.

The in-focus Anadarko takes the second spot in the fund with about 7.80% focus. The ETF has added about 15.9% in the year-to-date time frame and has a decent Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

IEO in Detail

This ETF tracks the iShares US Oil-Gas Exploration-Production, giving investors exposure to the broad energy space. The fund holds 76 stocks in its basket with AUM of over $575 million. The product charges 43 bps in fees per year from investors (read: A Comprehensive Guide to Oil & Gas ETFs).

Anadarko gets the third position in the basket with a share of 7.37%. From a sector perspective, exploration and production make up around 70% share of the fund, which has added 15.4% so far this year and has a Zacks ETF Rank of 1 (Strong Buy) with a ‘High’ risk outlook (read: Play the U.S. Oil Boom with These Energy ETFs).

Bottom Line

Anadarko is a lucrative stock from a strong industry. Investors should note that its industry is currently in the top third of the list as classified by the Zacks Industry Rank.

Though the oil exploration and production space has been delivering a soft trend lately, the aforementioned ETFs could well be in focus thanks to the U.S. shale-oil boom and the ever-growing need for cheaper gas across the world. Thus, investors can easily use the recent dip in the funds and be part of future growth stories.
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