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Expect an Earnings Beat From These 5 Energy Companies in Q4
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The Oil/Energy sector is more than halfway through the Q4 earnings season. Let’s take a look at the factors influencing quarterly results this time around.
Revenue & Earnings Comparison Relative to Q4 ’19
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?
According to the U.S. Energy Information Administration, in October, November and December of 2019, the average monthly WTI crude price was $53.96, $57.03 and $59.88 per barrel, respectively. In 2020, average prices were much lower — $39.40 in October, $40.94 in November and $47.02 in December.
However, the news is a little better on the natural gas front. In the fourth quarter of 2019, U.S. Henry Hub average natural gas prices were $2.33 per MMBtu in October and rose to $2.65 in November, before tumbling to $2.22 in December. Coming to 2020, the fuel was trading at $2.39, $2.61 and $2.59 per MMBtu, in October, November and December, respectively. In other words, natural gas traded higher in two of the three months.
Taking into account the sharp drop in oil price in particular, which forms the bulk of most companies’ production, the picture looks rather downbeat for the Q4 earnings season. Per the latest Earnings Trends, Energy is likely to have experienced a big earnings decline from a year earlier. Per our expectations, the sector’s earnings are likely to have slumped 94.3% from fourth-quarter 2019 on 31.9% lower revenues.
Some Energy Firms Stand Out Despite Pricing Woes
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 the uptick in oil prices, favorable year-over-year comparison in natural gas realizations and relatively steady production, some companies could surprise on the upside.
As a reflection of this, for the 52% S&P 500 companies that have already reported, total earnings are down 95.8% from the same period last year on 33.1% lower revenues — but with 76.9% beating earnings and revenue estimates. In other words, the bottom-line beat ratios so far are suggestive of encouraging numbers this season.
For example, biggies like ExxonMobil (XOM - Free Report) and Schlumberger (SLB - Free Report) bore the brunt of weaker commodity prices and demand, falling short of year-ago earnings but still beat profit expectations.
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
Ovintiv Inc. (OVV - Free Report) is an independent exploration and production (E&P) operator with an attractive oil and gas production portfolio in three major North American unconventional basins: Montney, Anadarko and the Permian. The company, with an Earnings ESP of +0.66% and a Zacks Rank #1, is scheduled to release earnings on Feb 18.
As far as earnings surprises are concerned, the Denver, CO-based company beat the Zacks Consensus Estimate in a quarter, missed in two and reported in-line in the other, delivering an earnings surprise of 7.98%, on average.
You may also consider PDC Energy, Inc. , which has a Zacks Rank #1 and an Earnings ESP of +10.77%. The Denver, CO-based company, which is focused on the Wattenberg Field in Colorado and the Delaware Basin in Texas, is scheduled to release earnings on Feb 24.
Over the trailing four quarters, PDC Energy surpassed the Zacks Consensus Estimate on three occasions and missed in the other, the surprise being -2,837.01%, on average.
Pioneer Natural Resources Company (PXD - Free Report) also deserves a mention. The stock has a Zacks Rank #2 and an Earnings ESP of +4.48%. Pioneer Natural Resources, with primary operations in the lucrative Permian Basin, is set to release results on Feb 17.
The company beat earnings estimates in three of the last four quarters and missed in the other — earnings surprise being 6.50%, on average.
Pioneer Natural Resources Company Price and EPS Surprise
Another worthwhile option is Diamondback Energy, Inc. (FANG - Free Report) , which has a Zacks Rank #2 and an Earnings ESP of +8.58%. The leading Permian Basin operator is scheduled to release earnings on Feb 22.
Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on each occasion, the surprise being 121.16%, on average.
Finally, we have Targa Resources Corp. (TRGP - Free Report) , which is a leading provider of integrated midstream services in North America. The company, with an Earnings ESP of +5.50% and a Zacks Rank #2, is scheduled to release earnings on Feb 18.
As far as earnings surprises are concerned, Targa Resources is on an excellent footing, having gone past the Zacks Consensus Estimate in each of the last four reports, with the average surprise being 351.95%.
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Expect an Earnings Beat From These 5 Energy Companies in Q4
The Oil/Energy sector is more than halfway through the Q4 earnings season. Let’s take a look at the factors influencing quarterly results this time around.
Revenue & Earnings Comparison Relative to Q4 ’19
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?
According to the U.S. Energy Information Administration, in October, November and December of 2019, the average monthly WTI crude price was $53.96, $57.03 and $59.88 per barrel, respectively. In 2020, average prices were much lower — $39.40 in October, $40.94 in November and $47.02 in December.
However, the news is a little better on the natural gas front. In the fourth quarter of 2019, U.S. Henry Hub average natural gas prices were $2.33 per MMBtu in October and rose to $2.65 in November, before tumbling to $2.22 in December. Coming to 2020, the fuel was trading at $2.39, $2.61 and $2.59 per MMBtu, in October, November and December, respectively. In other words, natural gas traded higher in two of the three months.
Taking into account the sharp drop in oil price in particular, which forms the bulk of most companies’ production, the picture looks rather downbeat for the Q4 earnings season. Per the latest Earnings Trends, Energy is likely to have experienced a big earnings decline from a year earlier. Per our expectations, the sector’s earnings are likely to have slumped 94.3% from fourth-quarter 2019 on 31.9% lower revenues.
Some Energy Firms Stand Out Despite Pricing Woes
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 the uptick in oil prices, favorable year-over-year comparison in natural gas realizations and relatively steady production, some companies could surprise on the upside.
As a reflection of this, for the 52% S&P 500 companies that have already reported, total earnings are down 95.8% from the same period last year on 33.1% lower revenues — but with 76.9% beating earnings and revenue estimates. In other words, the bottom-line beat ratios so far are suggestive of encouraging numbers this season.
For example, biggies like ExxonMobil (XOM - Free Report) and Schlumberger (SLB - Free Report) bore the brunt of weaker commodity prices and demand, falling short of year-ago earnings but still beat profit expectations.
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
Ovintiv Inc. (OVV - Free Report) is an independent exploration and production (E&P) operator with an attractive oil and gas production portfolio in three major North American unconventional basins: Montney, Anadarko and the Permian. The company, with an Earnings ESP of +0.66% and a Zacks Rank #1, is scheduled to release earnings on Feb 18.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
As far as earnings surprises are concerned, the Denver, CO-based company beat the Zacks Consensus Estimate in a quarter, missed in two and reported in-line in the other, delivering an earnings surprise of 7.98%, on average.
Ovintiv Inc. Price and EPS Surprise
Ovintiv Inc. price-eps-surprise | Ovintiv Inc. Quote
You may also consider PDC Energy, Inc. , which has a Zacks Rank #1 and an Earnings ESP of +10.77%. The Denver, CO-based company, which is focused on the Wattenberg Field in Colorado and the Delaware Basin in Texas, is scheduled to release earnings on Feb 24.
Over the trailing four quarters, PDC Energy surpassed the Zacks Consensus Estimate on three occasions and missed in the other, the surprise being -2,837.01%, on average.
PDC Energy, Inc. Price and EPS Surprise
PDC Energy, Inc. price-eps-surprise | PDC Energy, Inc. Quote
Pioneer Natural Resources Company (PXD - Free Report) also deserves a mention. The stock has a Zacks Rank #2 and an Earnings ESP of +4.48%. Pioneer Natural Resources, with primary operations in the lucrative Permian Basin, is set to release results on Feb 17.
The company beat earnings estimates in three of the last four quarters and missed in the other — earnings surprise being 6.50%, on average.
Pioneer Natural Resources Company Price and EPS Surprise
Pioneer Natural Resources Company price-eps-surprise | Pioneer Natural Resources Company Quote
Another worthwhile option is Diamondback Energy, Inc. (FANG - Free Report) , which has a Zacks Rank #2 and an Earnings ESP of +8.58%. The leading Permian Basin operator is scheduled to release earnings on Feb 22.
Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on each occasion, the surprise being 121.16%, on average.
Diamondback Energy, Inc. Price and EPS Surprise
Diamondback Energy, Inc. price-eps-surprise | Diamondback Energy, Inc. Quote
Finally, we have Targa Resources Corp. (TRGP - Free Report) , which is a leading provider of integrated midstream services in North America. The company, with an Earnings ESP of +5.50% and a Zacks Rank #2, is scheduled to release earnings on Feb 18.
As far as earnings surprises are concerned, Targa Resources is on an excellent footing, having gone past the Zacks Consensus Estimate in each of the last four reports, with the average surprise being 351.95%.
Targa Resources, Inc. Price and EPS Surprise
Targa Resources, Inc. price-eps-surprise | Targa Resources, Inc. Quote
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>