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Energy Stocks' Q3 Earnings Due on Oct 25: VLO, NOV & More

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Company News For Nov 16, 2018

Companies In The News Are: CSCO,DDS,JPM,BRK.B,AMAT

With the earnings season gathering steam, a host of companies are expected to report quarterly results by the end of this week. Almost 47% of the S&P 500 members will report their respective quarterly results by the end of this week.

Per the latest Earnings Trend Report dated Oct 17, 51 S&P 500 members have already reported quarterly results, with their total earnings up 19.4% from the same period last year on 7.9% higher revenues. Notably, 88.2% of the firms surpassed the Zacks Consensus Estimate for earnings, while 66.7% topped revenue estimates. Combining the actual numbers reported by the 51 members and estimates of the pending 449 companies, total earnings are expected to be up 19% from the same period last year on 7.2% higher revenues. Moreover, 10 of the 16 Zacks sectors are expected to register double-digit earnings growth.

Energy Sector Shining Bright: Picture Thus Far

The ‘Energy’ sector started off the earnings season on an impressive note. So far, three of the S&P energy companies, namely Schlumberger Limited, Halliburton Company and Kinder Morgan, Inc. have reported third-quarter results and each has managed to deliver an earnings beat.

The world’s largest oilfield services provider, Schlumberger, reported third-quarter 2018 earnings of 46 cents per share (eliminating charges and credits), marginally beating the Zacks Consensus Estimate of 45 cents. (Read more: Schlumberger Q3 Earnings Beat Estimates, Rise Y/Y).

Smaller rival Halliburton also reported higher-than-expected profit of 50 cents per share in the third quarter, marginally surpassing the Zacks Consensus Estimate of 49 cents. The figure was also ahead of the year-ago profit of 42 cents. (Read More: Halliburton Q3 Earnings Top Despite North America Woes)

Energy infrastructure provider Kinder Morgan also came up with better-than-expected numbers.   It reported third-quarter 2018 earnings of 21 cents per share from continuing operations, beating the Zacks Consensus Estimate of 20 cents and surging 40% from 15 cents in the year-ago quarter. (Read more: Kinder Morgan Q3 Earnings Beat & Revenues Lag Estimates)

Healthy Commodity Prices Drive the Sector

Average West Texas Intermediate (WTI) crude prices were recorded at $70.98, $68.06 and $70.23 per barrel in the month of July, August and September 2018, respectively, per data from the U.S. Energy Information Administration (EIA). These prices were considerably higher than the year-ago respective prices of $46.63, $48.04 and $49.82. Notably, oil prices were fueled by concerns over U.S. sanctions on Iran, OPEC’s efforts to tighten the market, supply bottlenecks in the United States and strong global demand.

Natural gas prices also fared well, following improving clean energy demand. The average monthly spot prices of the commodity for the respective months of third-quarter 2018 were $2.83 per Million Btu, $2.96 per Million Btu and $3.00 per Million Btu, representing healthier prices than third-quarter 2017.

Needless to say, such favorable developments buoyed investors’ optimism surrounding the sector’s third-quarter results.

Year-Over-Year Gain Leads to Bullish Expectations

Looking back at the second-quarter earnings season, the sector’s earnings surged 122.7% — recording the highest growth among all sectors — from the same period last year on 21.4% higher revenues.

In third quarter again, the energy sector is poised to record the highest growth among all sectors. Per our expectations, the sector’s earnings are expected to grow 85.9% from third-quarter 2017 and the top line is likely to improve 17% from the year-ago level.

Key Releases on Oct 25

Given this bullish backdrop, investors interested in the energy stocks can watch out for the below-mentioned four companies that are scheduled to report third-quarter 2018 numbers on Oct 25.

EQT Corporation EQT: The Pittsburgh, PA-based company, which is primarily engaged in the production and transportation of natural gas, is expected to unveil quarterly 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.

Notably, EQT has not missed the Zacks Consensus Estimate in any of the prior four quarters, recording an average positive earnings surprise of 151.1%.

EQT Corporation Price and EPS Surprise

EQT Corporation Price and EPS Surprise | EQT Corporation Quote

According to our proven model, EQT is expected to beat estimates this time as well, because it has the right combination of the two key ingredients. The company has an Earnings ESP of +8.27% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Year over-year improvement in commodity prices along with the company’s smart acquisition of Rice Energy are likely to buoy the to-be-reported quarter’s results. Evidently, the Zacks Consensus Estimate for revenues from sales of natural gas, oil and NGLs for the third quarter is $963 million, up from $553 million in the year-ago quarter. Revenues from pipeline and marketing services are projected at $352 million, up from the year-ago period’s $72 million.

Valero Energy Corporation VLO: The largest independent refiner and marketer of petroleum products in the United States, Valero is also set to come up with quarterly numbers before the opening bell. The company boasts an excellent track record of having outperformed estimates in each of the last four quarters, with an average positive earnings surprise of 7.2%.

Valero Energy Corporation Price and EPS Surprise

Valero Energy Corporation Price and EPS Surprise | Valero Energy Corporation Quote

However, our model indicates that Valero Energy’s earnings streak might come to a halt this time around, as the company does not have the right combination of the two key ingredients. While the company carries a Zacks Rank #3, its Earnings ESP of -0.32% makes surprise prediction difficult.

While the improved refining margin environment is likely to benefit the company’s results, weaker projections from its ethanol segment along with rising costs may limit earnings. The Zacks Consensus Estimate for the refining segment’s third-quarter operating income is pegged at $6,665 million vis a vis $1,429 million in the year-ago quarter. However, the Zacks Consensus Estimate for the ethanol segment’s operating income is pegged at $44.16 million, down from $82 million in the prior-year quarter. Further, the company is also bearing the brunt of increasing expenses, which may hurt overall income.

ConocoPhillips COP: Houston, TX-based exploration and production major is another company set to report third-quarter numbers before the opening bell. Notably, it surpassed earnings estimates in each of the trailing four quarters, with an average of 27.59%.

ConocoPhillips Price and EPS Surprise

ConocoPhillips Price and EPS Surprise | ConocoPhillips Quote

However, our proven model does not show that ConocoPhillips is likely to beat earnings estimates in the quarter to be reported, as it does not have the right mix of the two main ingredients. While the company carries a Zacks Rank #2, it has an Earnings ESP of 0.00%, which makes surprise prediction difficult.

While ConocoPhillips is set to benefit from the improving energy landscape, the company’s high costs may limit earnings. Notably, the Zacks Consensus Estimate for average sale price of oil and natural gas is pegged at $66 a barrel and $5.52 per Mcf, respectively, both witnessing a significant rise from the year-ago quarter. However, rising costs may play a spoiler. In fact, the firm has already projected its production and operating expenses at $5.7 billion for 2018, higher than $5.2 billion in 2017. This could hurt the company’s bottom-line growth.

National Oilwell Varco NOV: The Houston, TX-based energy equipment supplier is slated to report quarterly results after the closing bell. In the last reported quarter, the company reported better-than-expected results on stellar show across all segments. Coming to earnings surprise history, National Oilwell surpassed earnings estimates in three out of the trailing four quarters.

National Oilwell Varco, Inc. Price and EPS Surprise

National Oilwell Varco, Inc. Price and EPS Surprise | National Oilwell Varco, Inc. Quote

However, our proven model shows that it is unlikely to beat estimates in the to-be-reported quarter. While the company carries a Zacks Rank #3, its Earnings ESP of -4.66% makes surprise prediction difficult.

While the crude rally will certainly fuel its onshore-focused portfolio, the firm’s offshore-levered business might face challenges amid stiff competition and lower margins, owing to oversupply and increased costs. Evidently, the Zacks Consensus Estimate for adjusted EBITDA for the offshore-focused Rig Technologies unit is pegged at $75 million, lower than $84 million recorded in the second quarter of 2018. However, the expected segmental profit of $57 million from the onshore-levered Wellbore Technologies segment reflects an improvement from the prior-year figure of $38 million and is likely to offset the impact of the offshore weakness.

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