Advertisement
UK markets close in 6 hours 58 minutes
  • FTSE 100

    7,961.84
    +29.86 (+0.38%)
     
  • FTSE 250

    19,797.74
    -12.92 (-0.07%)
     
  • AIM

    741.85
    -0.26 (-0.04%)
     
  • GBP/EUR

    1.1679
    +0.0009 (+0.08%)
     
  • GBP/USD

    1.2593
    -0.0045 (-0.36%)
     
  • Bitcoin GBP

    56,130.25
    +666.36 (+1.20%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • S&P 500

    5,248.49
    +44.91 (+0.86%)
     
  • DOW

    39,760.08
    +477.75 (+1.22%)
     
  • CRUDE OIL

    81.60
    +0.25 (+0.31%)
     
  • GOLD FUTURES

    2,216.20
    +3.50 (+0.16%)
     
  • NIKKEI 225

    40,168.07
    -594.66 (-1.46%)
     
  • HANG SENG

    16,541.42
    +148.58 (+0.91%)
     
  • DAX

    18,491.14
    +14.05 (+0.08%)
     
  • CAC 40

    8,235.53
    +30.72 (+0.37%)
     

Oil Earnings Galore on Apr 27: MPC, EQT, HP, NOV, MPLX

We are in the heart of the Q1 earnings season, with more than 50% S&P 500 members expected to come up with results by the end of this week.

Picture Emerging Thus Far

We now have Q1 results from 95 S&P 500 members that combined account for 24.9% of the index’s total market capitalization. According to the latest Earnings Preview, total earnings for these companies are up 14.3% from the same period last year on 4.6% higher revenues, with 72.6% positive earnings surprises and 62.1% beating revenue estimates.

Energy: A Bad Start but Predictions Look Positive

As of now, the ‘Energy’ sector has been a drag on the aggregate growth picture. For the few sector components (6.1% to be precise) on the S&P 500 index that have reported Q1 results, total earnings are down 1.5% on 6.2% higher revenues. Interestingly, while none of the companies have been successful in beating earnings estimates, 50% of them have outperformed the topline.

ADVERTISEMENT

However, things are likely to get better with the segment eventually expected to clock its second consecutive positive earnings growth after 8 quarters of declines. Despite the slow start to the earnings season, with a number of energy companies set to unload numbers pretty soon, events are shaping up quite nicely for their report.

Let's take a look at how oil and gas prices behaved during the first three months of this year.

Q1 Report Card: Prices Move Lower but Recover from Year-Ago Lows

Despite hope offered by the biggest oil deal in a decade and a new pro-fossil fuel administration in the White House, crude prices logged a loss of almost 6% for the first quarter as traders focused on the rising flood of U.S. shale-driven production. In other words, while OPEC's moves to trim output and rebalance the demand-supply situation has stabilized the market to a large extent, in the process it has incentivized shale drillers to churn out more. With the recent uptick in U.S. shale production putting more pressure onto the market, oil ended the first quarter at $50.60 per barrel, 5.8% lower than year-end 2016 prices.

Natural gas fared worse, dropping more than 14% in the Jan-Mar period, thanks to one of the mildest winters on record. A warmer winter translated into tepid requirement for the heating fuel and upended demand forecasts.

Despite the sequential fall, both oil and natural gas prices are in a sweet spot compared to the corresponding period of 2016. While crude slumped to a 12-year low, natural gas futures dropped to its worst level in almost 17 years.

Year-over-Year Gains Leads to Bullish Expectations

Ending the dismal trend from the past few quarters, a look back at the Q4 earnings season reflects that the overall results of the Oil/Energy sector finally turned the corner, driving the aggregate growth picture for the S&P 500 index.

The Oct-Dec 2016 period turned out to be a rather good one with the OPEC deal and extreme weather conditions engineering a hefty rise in oil and gas prices during the fourth quarter.

A historic OPEC production cut agreement, together with help from non-OPEC producers saw oil prices end the year at $53.72 a barrel, representing a gain of 11.4% sequentially and 45% for the year. Meanwhile, natural gas embarked on its own upward journey, with futures jumping around 25% just in the fourth quarter. Ending the year at $3.724 per million Btu (MMBtu) – up 59% from 2015 – the heating fuel was buoyed by a cold snap that translated into strong demand.

As a result, following eight back-to-back quarters of earnings declines, analysts said that the sector was likely to get better in the fourth quarter and clock its first positive earnings growth after two years. With estimate revisions going up following OPEC’s Algeria grandstand, the Oil/Energy sector’s earnings were expected to improve handsomely from the fourth-quarter 2015 levels.

True to the predictions, the sector came out swinging. For the sector components on the S&P 500 index, total Q4 earnings were up 17.1% on 2.0% higher revenues.

The picture looks rather encouraging for the ongoing Q1 earnings season as well. This is not surprising, considering that oil and gas both fell to multi-year lows in the year-ago period. In fact, the 'Energy' sector is set to turn around from a modest loss in the year-earlier period to improving positive earnings this quarter.

Importantly, as per our analysis, the aggregate dollar amount of earnings increase for the Energy sector is the highest of all 16 Zacks sectors, with Energy expected to earn a total of $7.7 billion in Q1 vs. a loss $1.6 billion in the year-earlier quarter. The top-line is likely to show an impressive growth of 29.8% from the first quarter 2016 levels, while margins are set to improve 4.4%.

Stocks to Watch for Earnings on Apr 27

Let’s see what’s in store for five energy companies expected to come up with Mar quarter numbers on Thursday, Apr 27 before the opening bell.

Firstly, there is Marathon Petroleum Corp. MPC, a leading independent refiner, transporter and marketer of petroleum products.

In the fourth quarter of 2016, this Findlay, OH-headquartered downstream operator beat estimates handily as it overcame a tough commodity price and margin environment on better-than-expected refining and midstream segment performances.

Coming to the earnings surprise history, the company has a mixed record: its missed estimates in two of the last four quarters, resulting in an average negative surprise of 1.43%.

However, our model does not indicate that Marathon Petroleum is likely to beat on earnings this time around. This is because, as per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat earnings. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

For the quarter to be reported, Marathon Petroleum has an Earnings ESP of 0.00%, while it carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult. (Read more: Marathon Petroleum Q1 Earnings: What's in Store?)

Simultaneously, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Marathon Petroleum Corporation Price and EPS Surprise

 

Marathon Petroleum Corporation Price and EPS Surprise | Marathon Petroleum Corporation Quote

We also have Pittsburgh, PA-based EQT Corp. EQT coming out with first-quarter 2017 results tomorrow. As far as earnings surprise history is concerned, the company – an Appalachia-focused natural gas firm with primary focus on production and midstream operations – has an excellent track of having outperformed estimates in each of the last four quarters.

Powered with the right combination of two key ingredients – an Earnings ESP of +11.11% and Zacks Rank #3 – our proven model shows that an earnings beat is expected for EQT Corp. in the to-be-reported quarter as well. You can see the complete list of today’s Zacks #1 Rank stocks here.

EQT Corporation Price and EPS Surprise

 

EQT Corporation Price and EPS Surprise | EQT Corporation Quote

Helmerich & Payne Inc. HP is another energy player coming out with quarterly numbers - fiscal second-quarter 2017 results. The company is engaged in the contract drilling of oil and gas wells in the U.S. and internationally.

Regarding earnings surprises, Helmerich & Payne is on a bit of a slippery surface, having missed the Zacks Consensus Estimate in three of the last four reports.

And our model does not indicate that the company is likely to beat on earnings this time around as well, as it has a Zacks Rank #3 and an Earnings ESP of -7.32%. (Read more: Helmerich & Payne Q2 Earnings: What's in the Cards?)

Helmerich & Payne, Inc. Price and EPS Surprise

 

Helmerich & Payne, Inc. Price and EPS Surprise | Helmerich & Payne, Inc. Quote

We then have drilling equipment manufacturer National Oilwell Varco Inc. NOV. Based in Houston, TX, National Oilwell is a world leader in the design, manufacture, and sale of comprehensive systems, components, products, and equipment used in oil and gas drilling and production worldwide.

While aggressive cost reduction and improved efficiencies drove the company to three outperformances in the past four quarters, the trend might not continue this time around. With an Earnings ESP of 0.00% and a Zacks Rank #3, our proven model shows that an earnings beat is uncertain for National Oilwell in the upcoming quarterly release. (Read more: Can National Oilwell Spring a Surprise in Q1 Earnings?)

National Oilwell Varco, Inc. Price and EPS Surprise

 

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

Lastly, there is Marathon Petroleum-sponsored pipeline operator MPLX L.P. MPLX. Structured as a master limited partnership, MPLX owns, operates, develops and acquires pipelines and other midstream assets.

As far as earnings surprises are concerned, the partnership has a bad track of having underperformed estimates thrice in the last four quarters.

Our model does not indicate that MPLX is likely to beat on earnings this time around too, as it has a Zacks Rank #3 and an Earnings ESP of -15.00%. Though a Zacks Rank #3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

MPLX LP Price and EPS Surprise

 

MPLX LP Price and EPS Surprise | MPLX LP Quote

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
EQT Corporation (EQT): Free Stock Analysis Report
 
National Oilwell Varco, Inc. (NOV): Free Stock Analysis Report
 
Marathon Petroleum Corporation (MPC): Free Stock Analysis Report
 
Helmerich & Payne, Inc. (HP): Free Stock Analysis Report
 
MPLX LP (MPLX): Free Stock Analysis Report
 
To read this article on Zacks.com click here.