Continental Resources Inc.CLR has lost 24.9% year to date, against the oil-energy sector’s 3.4% decline. Moreover, the stock, carrying a Zacks Rank #5 (Strong Sell), has been witnessing downward earnings estimate revision for 2019 by most analysts.
Let’s delve into the factors that have taken a toll on the firm.
The escalating tariff war between the United States and China along with growing fears of recession has been denting demand for oil.
Since Sep 1, the Trump administration has imposed a 15% tariff on roughly $112 billion of imports from Beijing. America is set to levy a 15% tariff on a separate batch of Chinese goods of roughly $160 billion in value from Dec 15.
Beijing retaliated and started imposing additional tariffs on several imports from the United States to initiate its plan of levying extra duty on $75 billion of American goods. Of the total of 5,078 U.S. products that Beijing imports, 1,717 items have seen additional tariffs of 5% and 10%, respectively. The rest of the tariffs will be put into effect on Dec 15.
Importantly, for the first time in more than a year that the two big economies have begun a trade war, China — one of the largest crude importing countries in the world — has levied a 5% tariff on U.S. oil products, which is likely to hurt global energy demand. This is expected to prompt many analysts to downwardly revise 2019 estimates for worldwide crude demand.
Declining oil demand is weighing on the price of the commodity, trading at around $55 a barrel, and the price is unlikely to recover soon. Since crude contributes nearly 60% to total production volumes, the bearish crude pricing scenario is hurting the company’s bottom line.
Moreover, Continental expects total production expenses per barrel of oil equivalent in the band of $3.50 to $4.00 for 2019, the top end of which is significantly higher than $3.59 in 2018. The expected rise in operating expenses is also exerting pressure on the bottom line.
Following these bearish factors, the Zacks Consensus Estimate for the company’s 2019 earnings per share has been revised downward to $2.34 from $2.49 over the past 30 days.
Stocks to Consider
Some better-ranked players in the energy space include National Oilwell Varco Inc. NOV, World Fuel Services Corporation INT and Delek Logistics Partners LP DKL. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
National Oilwell is likely to see earnings growth of 75% in 2019.
World Fuel beat the Zacks Consensus Estimate in each of the trailing four quarters, the average positive earnings surprise being 16.4%.
Delek Logistics is likely to see earnings growth of 4.9% through 2019.
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