Expect an Earnings Beat From These 4 Energy Companies in Q4
The fourth-quarter 2023 earnings cycle is here, with quite a few Oil/Energy companies having reported results. Experts are warning that the earnings season might not be smooth sailing, as commodity prices have fallen considerably from the year-ago levels.
However, the doom and gloom may be overstated. To date, results have been above par, with beat percentages remaining impressive. In fact, the majority of energy firms have come out with a better-than-expected bottom line.
Based on our exclusive research and unique market insight, we present four stocks — Oceaneering International OII, USA Compression Partners USAC, Evolution Petroleum Corporation EPM and TC Energy Corporation TRP — to take advantage of the positive post-announcement price reaction.
But it’s worth taking a look at the factors influencing the quarterly results this time around first.
Revenue & Earnings Comparison Relative to Q4 of 2022
Investors should know that there is a high correlation between commodity prices and the earnings of energy companies.
So, how does the price of oil and gas compare with the year-ago period?
According to the U.S. Energy Information Administration, in October, November and December of 2022, the average monthly WTI crude price was $87.55, $84.37 and $76.44 per barrel, respectively. Average prices were $85.64 in October, $77.69 in November and $71.90 in December, i.e., weaker year over year.
The news is even more bearish on the natural gas front. In Q4 of 2022, U.S. Henry Hub average natural gas prices were $5.66 per MMBtu in October, $5.45 in November and $5.53 in December. The fuel traded at $2.98, $2.71 and $2.53 per MMBtu in October, November and December, respectively. In other words, natural gas traded noticeably lower in all three months.
Considering the drop in oil and gas prices, the picture looks rather downbeat for the Q4 earnings season. Per the latest Earnings Trends, energy is on track for a big earnings decline compared to a year earlier. Per our expectations, the sector’s bottom line is likely to have slumped 26.6% from fourth-quarter 2022 on 9.1% lower revenues.
Some Energy Firms Stand Out Despite Pricing Woes
Clearly, energy investors have ample reasons to worry about. As a reflection of this, for the 29.6% S&P 500 companies that have already reported, total earnings are down 33.1% from the same period last year on 13.6% lower revenues.
But pricing woes do not necessarily indicate that all energy scrips have lost potential. As a matter of fact, with successful cost control initiatives and strong production, some companies could surprise on the upside. This is supported by the healthy earnings picture to date, wherein 87.5% of the companies have beaten earnings estimates and 62.5% have outperformed revenue estimates. Although it is still early days, the bottom-line beat ratios so far are suggestive of encouraging numbers this season.
Investing in companies with an earnings beat potential can fetch handsome returns. This is because a stock generally surges on an earnings beat.
How to Identify Potential Outperformers?
With several energy firms thronging the investment space, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver better-than-expected earnings. While it is impossible to be sure about such outperformers, our proprietary methodology makes it fairly simple.
Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is our proprietary methodology for determining stocks that have the best chances to surprise with their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Our Choices
One might start with Oceaneering International, which is one of the leading suppliers of offshore equipment and technology solutions to the energy industry.
OII, with an Earnings ESP of +5.88% and a Zacks Rank #1, is scheduled to release fourth-quarter earnings on Feb 22. Oceaneering International beat the Zacks Consensus Estimate in the last quarter and missed in the previous three, which resulted in an earnings surprise of (28.5%), on average.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Oceaneering International, Inc. Price and EPS Surprise
Oceaneering International, Inc. price-eps-surprise | Oceaneering International, Inc. Quote
USA Compression Partners also deserves mention. The company has a Zacks Rank of 2 and an Earnings ESP of +4.35%. USAC is one of the largest independent natural gas compression services providers across the United States in terms of fleet horsepower.
USA Compression Partners beat earnings estimates once in the last four quarters and missed big in the other three, the earnings surprise being (92.6%), on average. USAC is set to release results on Feb 13.
USA Compression Partners, LP Price and EPS Surprise
USA Compression Partners, LP price-eps-surprise | USA Compression Partners, LP Quote
You may consider Evolution Petroleum too, which is #3 Ranked with an Earnings ESP of +20%. The Houston, TX-based company was founded in 2003 and is focused on the non-operated working interests in high-quality, long-life reserves in several properties across the United States.
EPM is scheduled to release earnings on Feb 6. It beat the Zacks Consensus Estimate for earnings in two of the last four quarters but missed twice, which resulted in an earnings surprise of 3.3%, on average.
Evolution Petroleum Corporation, Inc. Price and EPS Surprise
Evolution Petroleum Corporation, Inc. price-eps-surprise | Evolution Petroleum Corporation, Inc. Quote
Finally, we have TC Energy, a premier energy infrastructure provider in North America.
TC Energy, with an Earnings ESP of +2.31% and a Zacks Rank #3, is scheduled to release earnings on Feb 16. TRP surpassed earnings estimates in one of the trailing four quarters, met in another and missed in the other two, with the average being 0.1%.
TC Energy Corporation Price and EPS Surprise
TC Energy Corporation price-eps-surprise | TC Energy Corporation Quote
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Oceaneering International, Inc. (OII) : Free Stock Analysis Report
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Evolution Petroleum Corporation, Inc. (EPM) : Free Stock Analysis Report
