The second-quarter earnings season appears to be lackluster for oil and gas stocks owing to softness in commodity prices. The coronavirus pandemic hit the global economy hard, in turn bringing down energy demand growth.
In the last reported quarter, the Oils and Energy sector’s earnings declined 24.7% year over year on 8.5% revenue deterioration. For the second quarter, overall earnings and revenues for the sector are projected to plummet 155.4% and 26.2% year over year, per the latest Earnings Preview. In fact, the energy sector’s earnings are likely to decline the most among all the 16 sectors.
Let’s take a look at the key factors that are likely to have impacted energy stocks during the second quarter.
Partial Oil Price Recovery
The West Texas Intermediate (WTI) crude price, the American benchmark, declined sharply owing to the pandemic. For the month of April, May and June 2020, average WTI crude price was recorded at $16.55 per barrel, $28.56 and $38.31, respectively, per data from the U.S. Energy Information Administration (“EIA”). The figures are considerably lower than the respective year-ago figures of $63.86, $60.83 and $54.66, per EIA’s data.
However, the silver lining is that since the beginning of the quarter, the price of WTI crude has significantly improved owing to partial recovery in fuel demand, with the easing of lockdown measures.
The price of natural gas fell year over year. Per EIA, for the month of April, May and June 2020, average natural gas prices were recorded at $1.74 per million Btu, $1.75 and $1.63, respectively. The figures are considerably lower than the respective prices of $2.65, $2.64 and $2.40 a year ago, per EIA’s data. Low year-over-year commodity pricing scenario is likely to have resulted in a decline in profit levels.
Effect on Energy Companies
Recovering commodity pricing scenario is likely to have given some support to upstream businesses, owing to which, several companies can deliver earnings beat. However, the remarkable decline in oil and gas prices is likely to have resulted in year-over-year fall in profit levels.
Refining and downstream operations are likely to have been affected by the pandemic since the global demand for refined products took a considerable hit. However, a partial resumption of economic activities due to the easing of lockdowns resulted in a recovery in fuel demand. This is likely to have favored the downstream business partially in the second quarter.
The midstream business, in contrast, is relatively less likely to have been affected by coronavirus-induced oil price volatility. This is because midstream assets have been booked by shippers for the long term to transport liquids and refined products.
Energy Stocks Reporting on Aug 6
Given such a backdrop, let us take a look at how the following four energy players are placed ahead of their second-quarter earnings release tomorrow.
Our proprietary model indicates that a company needs to have 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 the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. You can see the complete list of today’s Zacks #1 Rank stocks here.
EOG Resources, Inc. EOG — which has significant acreages in oil shale plays like Permian, Bakken and Eagle Ford — is slated to release quarterly results after the market closes. The Zacks Consensus Estimate for the quarter’s loss and revenues is pegged at 14 cents per share and $2.3 billion, respectively. Over the preceding four quarters, EOG Resources missed estimates on three occasions and beat once, with the average negative surprise being 2.7%.
EOG Resources, Inc. Price and EPS Surprise
EOG Resources, Inc. price-eps-surprise | EOG Resources, Inc. Quote
Our proven model predicts an earnings beat for EOG Resources this time around, as it has an Earnings ESP of +21.99% and a Zacks Rank #2.
Canadian Natural Resources Limited CNQ — one of the largest independent energy companies in Canada that is engaged in exploration, development and production of oil and natural gas — is scheduled to release quarterly results before the opening bell.
The Zacks Consensus Estimate for this leading integrated energy player’s to-be-reported quarter’s loss is pegged at 56 cents per share, while the same for revenues stands at $2 billion. This indicates a year-over-year decline of 186.2% and 52.3%, respectively. In the trailing four quarters, it missed estimates twice, beat once and met on another occasion, with the average negative surprise being 140.5%.
Canadian Natural Resources Limited Price and EPS Surprise
Canadian Natural Resources Limited price-eps-surprise | Canadian Natural Resources Limited Quote
Our proven model predicts an earnings beat for Canadian Natural this time around as it has an Earnings ESP of +6.48% and a Zacks Rank #3.
Cheniere Energy, Inc. LNG — which is engaged in businesses related to liquefied natural gas (LNG) through two business segments: LNG terminal and LNG and natural gas marketing — is scheduled to release quarterly results before the opening bell. The Zacks Consensus Estimate for the quarter’s earnings and revenues is pegged at 39 cents per share and $2.5 billion, respectively. Over the preceding four quarters, Cheniere Energy beat estimates twice and missed on two occasions, with the average negative surprise being 455%.
Cheniere Energy, Inc. Price and EPS Surprise
Cheniere Energy, Inc. price-eps-surprise | Cheniere Energy, Inc. Quote
Our proven model does not conclusively predict an earnings beat for the company this time around, as it has an Earnings ESP of -2.28% and a Zacks Rank #3.
HollyFrontier Corporation HFC, one of the largest independent refiners and marketers of petroleum products in the United States, is slated to release quarterly results before the market opens. The Zacks Consensus Estimate for the quarter’s loss and revenues is pegged at 58 cents per share and $2.3 billion, respectively. Over the preceding four quarters, HollyFrontier beat estimates on three occasions and missed once, with the average surprise being 16.1%.
HollyFrontier Corporation Price and EPS Surprise
HollyFrontier Corporation price-eps-surprise | HollyFrontier Corporation Quote
Our proven model does not conclusively predict an earnings beat for HollyFrontier this time around, as it has an Earnings ESP of +3.74% and a Zacks Rank #4 (Sell).
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