We are in the thick of the Q3 earnings season, with results on board from 198 S&P 500 members that combined account for almost 50% of the index’s total market capitalization. Total earnings for these companies are up 3.2% from the same period last year on 1.9% higher revenues, with 73.7% positive earnings surprises and 61.1% beating revenue estimates. (Data from the Earnings Trends report dated Oct 26, 2016).

Energy: Another Quarter of Weak Results

Expectedly, the ‘Oils/Energy’ sector has been a big drag on the aggregate growth picture. For the 25% sector components on the S&P 500 index that have reported Q3 results, total earnings are down 66.8% on 18.5% lower revenues.

However, despite being the largest decliner among major sectors, an overwhelming 88.9% Oils/Energy companies have beaten earnings estimates – though undoubtedly aided by low expectations.

Oil & Gas Performance in Q3

Unlike the last quarter, in which oil advanced more than 26% sequentially to notch up the best quarterly percentage gain in seven years, the Jun-Sep 2016 period turned out to be a rather flat one with crude barely advancing. In fact, the West Texas Intermediate (WTI) crude futures during the third quarter hovered around the $45 per barrel mark, flat with the second quarter and down from $46.50 in the same period last year.

On the other hand, natural gas popped through the $3 barrier for the first time in more than a year during the third quarter. Successive below-average builds with strong power sector consumption have been cutting into the year-over-year storage surplus. In fact, natural gas prices have doubled since hitting 17-year lows of around $1.6 per MMBtu in the first quarter.

Overall, the earnings picture for energy stocks look rather uncertain.

Stocks to Watch for Earnings on Oct 31

Let’s see what’s in store for four such companies expected to come up with third-quarter numbers on Monday, Oct 31. Let’s take a look at how things are shaping up at their end.

A premier energy infrastructure provider in North America, Williams Companies Inc. (WMB Quick QuoteWMB - Free Report) is expected to report third-quarter 2016 results before the opening bell. 

In the preceding three-month period, the Tulsa, OK-based company met earnings estimates owing to significant cost reductions and continued improvement in financial performance.

But coming to 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 26.83%.

An earnings beat is uncertain for Williams this time around too. 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. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

For the quarter to be reported, Williams has an Earnings ESP of -12.50%, while it carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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.

Anadarko Petroleum Corp. is another energy firm to report third-quarter results on Monday – this time after the market closes.

Headquartered in Woodlands, TX, Anadarko Petroleum is one of the largest independent oil and natural gas exploration and production companies of the world. The oil and gas producer reported better-than-expected numbers in the second quarter on the back of successful cost reduction efforts. Moreover, Anadarko Petroleum has an excellent track of earnings surprises, having beaten estimates in each of the last three quarters.

However, with an Earnings ESP of 0.00% and Zacks Rank #3, our proven model shows that an earnings beat is uncertain for Anadarko Petroleum in the to-be-reported quarter. (Read more: Anadarko Petroleum Q3 Earnings: What's in Store?)

Tesoro Corp. , based in San Antonio, TX will come up with third-quarter 2016 resultsafter the closing bell. Coming to earnings surprise history, the independent refiner and marketer of refined petroleum products in the western U.S. has a good track of having beaten estimates in three of the last four quarters.

But we do not expect Tesoro to beat earnings expectations in the third quarter as our proven model shows that it does not have the right combination the two key components. While a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult. (Read more: Tesoro Corp: What Will Q3 Earnings Release Unveil?)

Finally, we have upstream operator Vermilion Energy Inc. (VET Quick QuoteVET - Free Report) coming up with third-quarter numbers on Monday before the market opens. A Canada-based international oil and gas producer, Vermilion Energy boasts of leading positions in Europe, North America and Australia.

The company is on a bit of a slippery surface though, having missed the Zacks Consensus Estimate in two of the last three reports.

Our model indicates that Vermilion Energy is unlikely to beat on earnings this time also. This is because it is a Zacks Rank #3 stock and has an Earnings ESP of 0.00%.

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