Back to top

Image: Bigstock

4 Energy Giants Poised to Outshine Q1 Earnings Estimates

Read MoreHide Full Article

The energy sector’s prospects are significantly linked to oil and natural gas prices. As such, the recovery in commodity prices on the back of multiple coronavirus vaccine rollouts around the globe is likely to influence results this earnings season.

Commodity Price Recovery

According to the U.S. Energy Information Administration (“EIA”), the price of West Texas Intermediate (WTI) crude improved roughly 24.7% through first-quarter 2021. Moreover, the average price was significantly higher for the month of March than $29.21 per barrel a year ago. Demand for the commodity rose through the quarter as fuel demand recovery, supported by the easing of travel bans, played a major role in boosting investor confidence.

Similarly, natural gas prices witnessed a massive jump in the first quarter. The U.S. Henry Hub average natural gas prices were $2.71 per MMBtu in January 2021, $5.35 in February and $2.62 in March, per EIA. In comparison, the commodity was trading at $2.02, $1.91 and $1.79 per MMBtu, in the first three months of 2020, respectively. In other words, natural gas traded higher in all the three months than the year-ago period.

What Does it Denote for Energy Players?

Taking into account the commodity price recovery, the picture looks rather upbeat for the Q1 earnings season. As such, the companies with upstream operations are expected to get a major boost in the bottom line from higher prices and rising demand. Similarly, downstream operations were likely favored by improved fuel demand in the March quarter, thanks to the easing of travel bans. However, winter storm in the first quarter is likely to have partially offset the positives from rising fuel demand.

Markedly, the business model for midstream players has always been relatively less exposed to volatility in oil and gas prices. The pipeline and terminal operators earn stable fee-based revenues from clients. The case is expected to be the same in the first quarter as well. However, some pipeline operators might have witnessed some hiccups during winter storms this year.

Zeroing in on Outperformers

In the light of the first-quarter business scenario, it’s worthwhile to invest in companies with earnings beat potential. This is because a stock generally surges on an earnings beat. However, with a wide range of energy firms flooding 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 delivering an earnings beat 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 that have the best chances of delivering earnings beat in their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

4 Potential Winners

Exxon Mobil Corporation (XOM - Free Report) is one of the biggest energy companies in the world. Despite the Texas winter storm, it projects an improvement in operating earnings for oil and liquids businesses to $1.6-$2 billion from the December quarter of 2020, thanks to an uptick in oil prices. The hike in natural gas prices is likely to contribute another $300-$700 million to profits of the upstream business. Moreover, it expects a $300-$500 million of sequential improvement in profits from the downstream business for the March quarter, backed by strong refining margins. From the chemical business, it estimates higher profit of $400-$600 million due to healthy chemicals margin.

As far as earnings surprises are concerned, the Irving, TX-based company beat the Zacks Consensus Estimate in three of the trailing four quarters and missed in one, delivering an average surprise of 362.4%. ExxonMobil, with an Earnings ESP of +8.09% and a Zacks Rank #1, is scheduled to release first-quarter earnings on Apr 30, before the opening bell. You can see the complete list of today’s Zacks #1 Rank stocks here.

Exxon Mobil Corporation Price and EPS Surprise

Exxon Mobil Corporation Price and EPS Surprise

Exxon Mobil Corporation price-eps-surprise | Exxon Mobil Corporation Quote

Chevron Corporation (CVX - Free Report) is one of the largest publicly-traded oil and gas companies in the world, with operations that span across almost every corner of the globe. Its cost-reduction efforts have been encouraging and are expected to have boosted profits in the first quarter. Strong production volumes from the prolific Permian Basin are anticipated to have supported its first-quarter profits.

San Ramon, CA-based Chevron has a Zacks Rank #3 and an earnings ESP of +3.32%. It is scheduled to release first-quarter 2021 results on Apr 30, before the opening bell. As far as earnings surprises are concerned, the company beat the Zacks Consensus Estimate in two of the trailing four quarters and missed on the other two occasions, delivering an average surprise of 14%.

Chevron Corporation Price and EPS Surprise

Chevron Corporation Price and EPS Surprise

Chevron Corporation price-eps-surprise | Chevron Corporation Quote

Headquartered in Calgary, Alberta, Enbridge Inc. (ENB - Free Report) is a leading energy infrastructure company. It is scheduled to release first-quarter 2021 results on May 7, before the opening bell. A significant portion of the company’s first-quarter earnings is likely to have been generated from transportation operations, driven by a string of long-term contracts. Notably, it transports around 25% of crude oil produced in the North America region.

The stock has a Zacks Rank #3 and an Earnings ESP of +6.79%. In the trailing four quarters, the company beat earnings estimates once, missed twice and reported in line on another occasion, with the average surprise being 1.3%.

Enbridge Inc Price and EPS Surprise

Enbridge Inc Price and EPS Surprise

Enbridge Inc price-eps-surprise | Enbridge Inc Quote

Houston, TX-based Enterprise Products Partners L.P. (EPD - Free Report) — which is among the leading midstream energy players in North America and has an extensive network of pipeline that spreads across 50,000 miles — is set to report first-quarter results on May 3, before the opening bell. Almost 80% of its pipeline contracts with shippers have been extended for 15-20 years, which should have helped the partnership generate steady cash flow.

It has a Zacks Rank #3 and an Earnings ESP of +6.00%. Over the trailing four quarters, Enterprise Products surpassed the Zacks Consensus Estimate thrice and met on one occasion, with the earnings surprise being 5.4%, on average.

Zacks Names “Single Best Pick to Double”

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research SherazMian hand-picks one to have the most explosive upside of all.

You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.

Free: See Our Top Stock and 4 Runners Up >>

Published in