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5 Energy Stocks Set to Beat Estimates in Coronavirus-Hit Q2

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With the Oil/Energy sector’s Q2 earnings season getting underway, let’s take a look at the factors influencing quarterly results this time around.

Coronavirus Crushes Commodity Markets

Investors should know that there is a high correlation between commodity price and the earnings of energy companies.

So, how does the price of oil and gas compare with the year-ago period?

Collapsing commodity prices and demand are likely to have played foul on the sector’s top and bottom line with negative growth expected on both fronts. While things started getting bad toward the end of the first quarter, the full impact of the coronavirus pandemic and the oil price slump will only have been felt in the April-June period when crude even plunged into negative territory briefly.

According to the U.S. Energy Information Administration, in April, May and June of 2019, the average monthly WTI crude price was $63.86, $60.83 and $54.66 per barrel, respectively. This year, average prices were much lower - $16.55 in April, $28.56 in May and $38.31 in June.

The news is not rosy on the natural gas front either. In Q2 of last year, U.S. Henry Hub average natural gas prices were $2.65 per MMBtu in April, falling to $2.64 in May and $2.40 in June. Coming to 2020, the fuel was trading at $1.74, $1.75 and $1.63 per MMBtu, in April, May and June, respectively.

A Difficult Quarter for Oil & Gas Companies

Taking into account the sharp drop in commodity price, the picture looks rather downbeat for the Q2 earnings season.

Per the latest Earnings Preview, Energy is likely to have experienced big earnings decline from a year earlier. Per our expectations, the sector’s earnings are likely to have slumped 146.4% from second-quarter 2019 on 42.2% lower revenues.

Some Energy Firms to Stand Out

Clearly, energy investors have ample reasons to worry about. But pricing woes do not necessarily indicate that all energy scrips have lost potential. In fact, with crude essentially doubling from Q1 levels and some previously shut-in production coming back online, some companies could surprise on the upside. Earlier this week, oilfield service biggie Halliburton (HAL - Free Report) gave strong start to the Q2 earning season. The company bore the brunt of weaker oil and gas prices but still beat bottom-line estimates.

Investing in companies with an earnings beat potential can fetch handsome returns for investors. This is because a stock generally surges on an earnings beat.

How to Identify Potential Outperformers?

But with a wide range of 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, which 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

Magellan Midstream Partners, L.P. is known for its longest refined petroleum products pipeline system in the U.S. with access to almost half of the total domestic refining capacity. The partnership, with an Earnings ESP of +4.10% and a Zacks Rank #2, is scheduled to release earnings on Jul 30.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 

 

You may also consider Crescent Point Energy Corp. (CPG - Free Report) , which has a Zacks Rank #2 and an Earnings ESP of +12.50%. The Calgary-based company, whose operations are primarily concentrated in southwest and southeast Saskatchewan, is scheduled to release earnings on Jul 30.

 

Enbridge Inc. (ENB - Free Report) also deserves a mention. The stock has a Zacks Rank #3 and an Earnings ESP of +1.77%. Enbridge, a North American energy infrastructure provider, is set to release results on Jul 29.

Enbridge Inc Price and EPS Surprise

Enbridge Inc Price and EPS Surprise

Enbridge Inc price-eps-surprise | Enbridge Inc Quote

 

Another worthwhile option is Helmerich & Payne, Inc. (HP - Free Report) , which has a Zacks Rank #3 and an Earnings ESP of +2.03%. The contract driller of oil and gas wells is scheduled to release earnings on Jul 28.

Helmerich Payne, Inc. Price and EPS Surprise

Helmerich  Payne, Inc. Price and EPS Surprise

Helmerich Payne, Inc. price-eps-surprise | Helmerich Payne, Inc. Quote

 

Finally we have National Oilwell Varco, Inc. (NOV - Free Report) , which is a leading oilfield service company with an extensive portfolio of proprietary technologies. The company, with an Earnings ESP of +8.10% and a Zacks Rank #3, is scheduled to release earnings on Jul 27.

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