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The earnings season is in full swing with around 110 S&P 500 members having already reported their quarterly numbers.
Picture So Far
Per the latest Earnings Preview dated Jul 20, 87 S&P 500 members have already reported quarterly results, with their total earnings up 20.9% from the same period last year on 10.3% higher revenues. Notably, 86.2% of the firms surpassed the Zacks Consensus Estimate for earnings, while 77% topped revenue estimates. Notably, the 87 S&P members that have kick-started the earnings season account for 25.7% of the index’s total market capitalization.
The earnings season is going to take the center stage with more than 750 companies scheduled to report financial numbers by the end of this week, including 175 S&P 500 members. Combining the actual numbers reported by the 87 members and estimates of the pending 413 companies, total earnings are expected to be up 21% from the same period last year on 8.3% higher revenues. Moreover, 11 of the 16 Zacks sectors are expected to register double-digit earnings growth.
Meanwhile, so far just five of the energy companies on the S&P 500 index have reported their Q2 results. These include Halliburton Company, Kinder Morgan, Inc., Schlumberger Limited, Baker Hughes, a GE Company and Hess Corporation.
The world’s largest oilfield services provider, Schlumberger, reported second-quarter 2018 earnings of 43 cents per share (eliminating charges and credits), marginally beating the Zacks Consensus Estimate of 42 cents. The company posted total revenues of $8,303 million, missing the Zacks Consensus Estimate of $8,337 million. (Read more: Schlumberger Q2 Earnings Beat, Revenues Miss Estimates)
Smaller rival Halliburton reported slightly lower-than-expected profit of 58 cents per share in the second quarter, lagging the Zacks Consensus Estimate of 59 cents. However, revenues of $6,147 million beat the Zacks Consensus Estimate of $6,110 million. (Read more: Halliburton Posts Q2 Earnings Miss, Sales Surpass)
While Baker Hughes reported weaker-than-expected results, Kinder Morgan came up with stronger-than-anticipated profit and sales. Hess also delivered narrower-than-expected loss on crude price strength.
Year-over-Year Gain Leads to Bullish Expectations
Looking back at the Q1 earnings season, the sector’s earnings surged 79.6% from the same period last year — by far the highest growth among all sectors — on 14.5% higher revenues.
In Q2 again, the energy sector is poised to record the highest growth among all sectors. Per our expectations, earnings for the sector are expected to jump 136.9% from second-quarter 2017, while the top line is likely to improve 20.2% from the year-ago levels.
What’s Going in Favor of the Energy Sector?
The oil benchmark in the United States attained its highest settlement since November 2014 in the second quarter, despite record high domestic production. Average West Texas Intermediate (WTI) crude prices for the month of April, May and June 2018 were recorded at $66.25, $69.98 and $67.87 per barrel, respectively, per data from the U.S. Energy Information Administration (EIA). These average prices were considerably higher than the year-ago respective prices of $51.06, $48.48 and $45.18.
Crude was supported by a variety of catalysts, including a series of buoyant weekly EIA crude inventory numbers, worries about tightening global supplies in the midst of strong demand and doubts regarding OPEC’s ability to boost production.
Meanwhile, since the crude oil and refined products prices don’t always move in lockstep, the crack differentials are also widening, leading to margin expansion and higher refining capacity rate for the refiners. Refiners are also reaping the benefit of increased demand for their products.
Needless to say, such favorable developments have buoyed investors’ optimism surrounding the sector’s second-quarter results.
Energy Stocks’ Earnings to Watch on Jul 26
With the earnings season gathering steam, a host of S&P 500 energy companies are expected to report quarterly results by the end of this week. We have highlighted six energy companies that are slated to release quarterly numbers on Jul 26. Let’s find out what’s in store for these companies.
Helmerich & Payne, Inc. HP: The Tulsa-based drilling company is slated to report fiscal third-quarter 2018 results before the opening bell.
According to our quantitative model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase its odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Note that we caution against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
In the last reported quarter, Helmerich & Payne recorded net operating loss per share (excluding special items) of 5 cents, in line with the Zacks Consensus Estimate. Notably, it topped estimates in three out of the trailing four quarters, recording an average positive earnings surprise of 12.93%
However, our proven model does not show that Helmerich & Payne is likely to beat earnings estimates in the to-be-reported quarter as it has a Zacks Rank #3 and an Earnings ESP of -55.56%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Helmerich & Payne, Inc. Price and EPS Surprise
Helmerich & Payne, Inc. Price and EPS Surprise | Helmerich & Payne, Inc. Quote
Tepid margins from the Offshore and International Land drilling segments are likely to counter solid results from its U.S. Land unit in the fiscal third quarter. The Zacks Consensus Estimate for operating income of U.S. Land segment is pegged at $40.16 million, reflecting a turnaround from the year-ago quarter’s operating loss of $8 million. However, declining margins in the International Land and Offshore units remain a concern and are likely to offset the optimism surrounding the stock. (Read More: Key Factors to Impact Helmerich & Payne's Q3 Earnings)
Marathon Petroleum Corporation MPC: This independent oil refiner and marketer is set to release second-quarter results before the opening bell. The Findlay, OH-based downstream operator has a mixed history, having surpassed the Zacks Consensus Estimate twice in the trailing four quarters. In the preceding three-month period, the company delivered a negative earnings surprise of 42.86%.
Our proven model does not conclusively show that Marathon Petroleum will beat estimates in the quarter to be reported, as it carries a Zacks Rank #3 and has an Earnings ESP of 0.00%.
Marathon Petroleum Corporation Price and EPS Surprise
Marathon Petroleum Corporation Price and EPS Surprise | Marathon Petroleum Corporation Quote
While the company is likely to witness growth in the refining and midstream segment, Marathon’s Petroleum’s retail unit might limit the overall results. The Zacks Consensus Estimate for the refining segment’s (the main contributor to Marathon Petroleum’s earnings) bottom line stands at $631 million compared with the year-ago operating income of $562 million. Meanwhile, the Zacks Consensus Estimate for quarterly income from operations is pegged at $217 million, below the $239 million reported figure in the year-ago quarter. (Read More: Can Marathon Petroleum Pull a Surprise in Q2 Earnings?)
National Oilwell Varco NOV: Energy equipment supplier National Oilwell will report second-quarter results after the closing bell. In the last reported quarter, the company reported weaker-than-expected results on poor performance especially from the Rig Technologies segment. In the trailing four quarters, the company delivered a negative earnings surprise of 84.38%.
However, things are likely to turn around this season as National Oilwell — having a Zacks Rank #3 and an Earnings ESP of +29.63% — is expected to deliver stronger-than-expected results. Robust performance from all its segments, namely Rig Technologies, Wellbore Technologies, and Completion & Production Solutions, along with cost-containment efforts and solid project execution are expected to buoy second-quarter results of the company.
National Oilwell Varco, Inc. Price and EPS Surprise
National Oilwell Varco, Inc. Price and EPS Surprise | National Oilwell Varco, Inc. Quote
Notably, the Zacks Consensus Estimate for Wellbore Technologies’ second-quarter operating profit is pegged at $35 million, indicating a turnaround from a loss of $24 million in the year-ago quarter. The Zacks Consensus Estimate for operating profit of the Rig Technologies unit is pegged at $37.37 million, higher than $18 million recorded in the first quarter of 2018. Also, the Zacks Consensus Estimate for the Completion & Production Solutions segment’s second-quarter operating profit is pegged at $28.60 million, up from $27 million in the year-ago period. (Read More: National Oilwell to Post Q2 Earnings: A Beat in Store?)
Valero Energy Corporation VLO: Texas-based leading refinery player is slated to report second-quarter results before the opening bell. The company surpassed the Zacks Consensus Estimate in all the trailing four quarters, with the average positive earnings surprise being 8.8%. Valero is expected to keep its earnings streak alive in the second quarter as well, as it has the right combination of the two key ingredients. The company has an Earnings ESP of +1.32% and a Zacks Rank #3.
Better-than-expected performance by all the business units along with higher-than-expected throughput margin will likely aid the company post impressive numbers in the second quarter. The Zacks Consensus Estimate for throughput margin per barrel from the company’s refining operations is pegged at $10.84, higher than $8.36 in the last reported quarter and $8.66 in the year-ago quarter.
Valero Energy Corporation Price and EPS Surprise
Valero Energy Corporation Price and EPS Surprise | Valero Energy Corporation Quote
As a result, the Zacks Consensus Estimate for second-quarter operating income at the refining segment is pegged at $1,341 million, considerably higher than $922 million and $959 million in the prior-quarter and the year-ago quarter, respectively. (Read More: Can Valero Energy Keep Earnings Streak Alive in Q2?)
ConocoPhillips COP: Houston, TX-based exploration and production major is set to come up with second-quarter numbers before the opening bell. In the last reported quarter, the upstream energy company delivered an earnings surprise of 29.7%. ConocoPhillips recorded an average positive earnings surprise of 226.9% in the last four quarters.
Our model indicates that the company is likely to beat earnings estimates this time around as well, as it has a Zacks Rank #1 and an Earnings ESP of +5.09%. Higher expectation of natural gas prices, natural gas liquids and crude oil will likely favor the company’s second-quarter earnings.
ConocoPhillips Price and EPS Surprise
ConocoPhillips Price and EPS Surprise | ConocoPhillips Quote
Average sales price of natural gas liquids for the second quarter is estimated at $28.62 per barrel, higher than $20.96 a barrel in the year-ago quarter. Average crude oil sales price is expected at $63 per barrel, higher than the year-ago quarter’s $48.16. (Read More: Does a Beat Await ConocoPhillips This Earnings Season?)
EQT Corporation EQT: Upstream energy player EQT is set to report second results before the opening bell. The Pittsburgh, PA-based company surpassed the Zacks Consensus Estimate in three of the prior four quarters, recording an average positive earnings surprise of 151.4%.
Notably, our proven model does not show that EQT is likely to beat earnings estimates in the to-be-reported quarter. This is because the company has an Earnings ESP of -2.50% and a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, a negative Earnings ESP makes surprise prediction difficult.
EQT Corporation Price and EPS Surprise
EQT Corporation Price and EPS Surprise | EQT Corporation Quote
The Zacks Consensus Estimate for second-quarter average daily sales volume is pegged at 4,036 million cubic feet equivalent per day (MMcfe/d), higher than 3,967 MMcfe/d in the preceding quarter and 2,177 MMcfe/d in the year-ago quarter. The year-over-year increase can be attributed to the Rice Energy acquisition. However, we remain concerned of the increased costs incurred by the company. During first quarter of 2018, EQT’s expenses related to exploration activities surged more than 63%. If the trend continues, the company’s profit levels might get affected, in turn hurting EQT’s earnings.
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