Following the oil crash toward the end of 2018 that took everyone by storm, crude ended up posting the biggest quarterly gain in a decade. With oil popping up to $60.55 a barrel, the March quarter witnessed the fastest rate of oil price hike since 2009. Needless to say, rising oil prices have buoyed investors’ optimism on the sector’s first-quarter 2019 results.
Q1 Progress Report: Oil Treads on Growth Trajectory
A bearish outlook for Asian economies, anticipation of soft demand, increased inventories, waivers on Iranian sanctions and many other factors pulled WTI crude down to around $45 per barrel level during 2018 end. However, oil prices jumped around 32% to more than $60 a barrel by March-end. Various factors have been responsible for crude’s bullish run during the quarter under review.
The OPEC+ deal has certainly been one of the major drivers behind the uptick in oil prices. OPEC and Russia-led oil exporters’ decision to cut crude oil supplies by 1.2 million barrels per day (bpd) beginning January 2019 aided the stabilization of oil prices.
In addition to OPEC+ induced supply slashes, U.S. sanctions against Venezuela and Iran also tightened the commodity’s fundamentals. Output from this major OPEC member fell from the 2015-level of 2.4 million bpd to 961,000 bpd in March 2019. This, in turn, hurt global oil supply, leading to a positive pricing pressure.
Contrary to the lower crude demand projections made last year, IEA’s forecast during the concerned quarter stated that demand for oil will rise 7.2 million bpd through 2024. The worldwide oil demand in 2019 is estimated to be 100.5 million bpd, up 1.2% year over year. Despite the swell in electric cars and green initiatives, usage of oil in the petrochemicals and aviation industry will be a key demand driver. Around 30% of the demand will result from these factors. Moreover, the spike in demand for oil from China and India has been pushing up crude prices.
It goes without saying that most oil-related stocks are thus poised to gain traction from the recovery in prices of this commodity.
Picture Thus Far
The ‘Energy’ sector kicked off this earnings season on a decent note. So far, three of the S&P 500 energy stocks, namely Schlumberger SLB, Halliburton HAL and Kinder Morgan have released their first-quarter results. While each of these companies reported in-line earnings, Halliburton and Schlumberger’s top lines surpassed estimates.
The world’s biggest oilfield service provider Schlumberger posted first-quarter 2019 earnings of 30 cents per share on $7.9 billion of revenues. (Read More: Schlumberger Q1 Earnings Meet, Revenues Beat Estimates)
Halliburton's adjusted net income came in at 23 cents per share on revenues of $5.7 billion. (Read More: Halliburton Q1 Earnings Meet Estimates, Revenues Beat)
Both Schlumberger and Halliburton expect the rebound in the international markets to continue where the drilling rig count is rising and the final investment decisions on their clients’ projects are likely to bear fruition on oil price strength.
Kinder Morgan not only reported higher year-over-year earnings and revenues, it also hiked its quarterly dividend by 25%. (Read More: Kinder Morgan Posts In-Line Q1 Earnings, Hikes Dividend)
With this week turning out to be one of the busiest this reporting cycle, investors are keenly awaiting results from energy bigwigs like ExxonMobil and Chevron, which are scheduled to announce financial results before the opening bell on Apr 26.
Picking the Prospective Winners for Q1
The encouraging dynamics of the oil industry suggest that there are a number of companies, which are likely to trump first-quarter estimates. However, with a wide range of energy firms thronging the investment space, it is by no means an easy task for investors to arrive at the stocks with great potential to deliver better-than-expected earnings.
While it is impossible to be absolutely sure about such outperformers, our proprietary methodology — Earnings ESP — makes it relatively simple. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
A positive Earnings ESP is a chief ingredient of our proven quantitative model for identifying the stocks with maximum chances of pulling off a positive surprise in their upcoming quarterly releases. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
You can further narrow down the list of choices by picking stocks carrying a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with the above-mentioned combination, chances of an earnings beat are as high as 70%.
Bet on These 5 Stocks for Robust Returns
Patterson-UTI Energy, Inc. (PTEN): Texas-based Patterson-UTI is one of the largest North American land-drilling contractors, owning a large, high-quality fleet of drilling rigs. The company’s technologically advanced ‘Apex’ rigs — which command high day rates and utilization than the rigs from other land drillers — hold the key to Patterson-UTI’s success.
The company’s earnings surpassed estimates in the last two quarters and is poised for a hat-trick as it carries a Zacks Rank #3 and an Earnings ESP of +1.68%. Patterson-UTI is expected to report on Apr 25.
Patterson-UTI Energy, Inc. Price and EPS Surprise
Patterson-UTI Energy, Inc. Price and EPS Surprise | Patterson-UTI Energy, Inc. Quote
Devon Energy Corporation (DVN): Oklahoma-based Devon Energy is an independent energy company engaged in the production of oil and gas. The company’s diversified portfolio and focus on its high-margin shale plays like Delaware, STACK and Eagle Ford are likely to boost its performance.
It is powered by the perfect combination of the two key elements to deliver an earnings beat this quarter to be reported. Devon Energy has an Earnings ESP of +21.28% and a Zacks Rank #2. The firm is expected to come out with its quarterly numbers on Apr 30.
Devon Energy Corporation Price and EPS Surprise
Devon Energy Corporation Price and EPS Surprise | Devon Energy Corporation Quote
Apache Corporation (APA): Headquartered in Texas, Apache is one of the world's leading independent energy companies engaged in the exploration and production of oil and gas. The company’s large geographically diversified reserve base as well as its big finds in the Western Texas — Alpine High region is appreciable.
This upstream player has been on an excellent run. It breezed past estimates in each of the last four quarters. With an Earnings ESP of +28.93% and a Zacks Rank of 2, the company is likely to come up with a positive earnings surprise this season as well. The company is anticipated to report its results on May 1.
Apache Corporation Price and EPS Surprise
Apache Corporation Price and EPS Surprise | Apache Corporation Quote
Parsley Energy, Inc. (PE): Texas-based Parsley Energy is an independent oil and gas exploration & production company, primarily focused on the Permian Basin. An extensive inventory of the premium drilling locations both in the Midland and Delaware sides of the Permian Basin has been aiding its top-tier production growth.
The company delivered average positive surprise of 6.64% in the trailing four quarters. Our model indicates that Parsley Energy is likely to beat on earnings this season as it is a Zacks #2 Ranked player and has an Earnings ESP of +5.26%.The company is slated to report financial numbers on May 1.
Parsley Energy, Inc. Price and EPS Surprise
Parsley Energy, Inc. Price and EPS Surprise | Parsley Energy, Inc. Quote
Noble Corporation NE: Switzerland-based Noble Corporation is a provider of diversified services for the oil and gas industry. The company’s solid portfolio of assets and a strong backlog position bode well for growth.
The company’s major metrics outshined estimates in three of the preceding four quarters, the average beat being 37.06%. Our model shows that the company is likely to retain its beat streak this time around as it has Zacks Rank #3 and an Earnings ESP of +4.82%. It is expected to release results on May 1.
Noble Corporation Price and EPS Surprise
Noble Corporation Price and EPS Surprise | Noble Corporation Quote
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