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5 Energy Plays to Stand Out in Q1 Earnings Amid Crude Crash
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With the Oil/Energy sector’s Q1 earnings season in full force, let’s take a look at the factors influencing quarterly results this time around.
A Combination of Collapsing Oil & Gas Prices
By now it’s well documented that coronavirus induced a massive slump in oil demand amid a supply glut. With major cities under lockdown and travel restrictions in place, the consumption for crude dropped substantially during the first three months of 2020.
According to the U.S. Energy Information Administration, WTI prices started the first quarter of 2019 at around $47 per barrel and exited the period at $60 per barrel. This year, prices were just over $60 a barrel at the start of the year but plunged to $20 at the end of March.
The news is not rosy on the natural gas front either.
In Q1 of last year, natural gas prices were just under $3 per MMBtu in the beginning and fell slightly to end March at $2.7 per MMBtu. Coming to 2020, the fuel was trading at $2.2 per MMBtu in the beginning of January and struggled throughout the quarter to end at $1.64 per MMBtu.
Energy Companies to Have it Rough
Taking into account the sharp drop in commodity price, the picture looks rather downbeat for the Q1 earnings season.
Per the latest Earnings Trend, Energy is likely to have experienced big earnings decline from a year earlier. Per our expectations, the sector’s earnings are likely to have fallen 54.7% from first-quarter 2019 on 12.1% lower revenues.
For the few companies that have already reported, total earnings are down 1% from the same period last year on 5.2% lower revenues, with 100% positive earnings surprises but none beating revenue estimates.
Some Energy Firms Likely to 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, the bottom-line beat ratios so far are suggestive of encouraging numbers this season and is validated by the oilfield service major’s results. Biggies like Schlumberger (SLB - Free Report) , Halliburton (HAL - Free Report) and Baker Hughes bore the brunt of weaker oil and gas prices 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 Such Stocks?
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
Concho Resources Inc. is known for its strategic acreage position in the low-cost Permian Basin. The company, with an Earnings ESP of +3.48% and a Zacks Rank #3, is scheduled to release earnings on Apr 30.
You may also consider USA Compression Partners, LP (USAC - Free Report) , which has a Zacks Rank #3 and an Earnings ESP of +150%. The natural gas compression services provider is scheduled to release earnings on May 5.
USA Compression Partners, LP Price and EPS Surprise
NOW Inc. (DNOW - Free Report) also deserves a mention. The stock has a Zacks Rank #3 and an Earnings ESP of +10.26%. NOW, a service provider to the upstream, midstream, and downstream energy industries, is set to release results on May 6.
Another worthwhile option is Talos Energy Inc. (TALO - Free Report) , which has a Zacks Rank #3 and an Earnings ESP of +40%. The Gulf of Mexico-focused energy explorer is scheduled to release earnings on May 6.
Finally we have Viper Energy Partners LP (VNOM - Free Report) , which has mineral interest in prolific oil-rich shale plays like the Eagle Ford and Permian Basin. The company, with an Earnings ESP of +63.08% and a Zacks Rank #3, is scheduled to release earnings on May 4.
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
5 Energy Plays to Stand Out in Q1 Earnings Amid Crude Crash
With the Oil/Energy sector’s Q1 earnings season in full force, let’s take a look at the factors influencing quarterly results this time around.
A Combination of Collapsing Oil & Gas Prices
By now it’s well documented that coronavirus induced a massive slump in oil demand amid a supply glut. With major cities under lockdown and travel restrictions in place, the consumption for crude dropped substantially during the first three months of 2020.
According to the U.S. Energy Information Administration, WTI prices started the first quarter of 2019 at around $47 per barrel and exited the period at $60 per barrel. This year, prices were just over $60 a barrel at the start of the year but plunged to $20 at the end of March.
The news is not rosy on the natural gas front either.
In Q1 of last year, natural gas prices were just under $3 per MMBtu in the beginning and fell slightly to end March at $2.7 per MMBtu. Coming to 2020, the fuel was trading at $2.2 per MMBtu in the beginning of January and struggled throughout the quarter to end at $1.64 per MMBtu.
Energy Companies to Have it Rough
Taking into account the sharp drop in commodity price, the picture looks rather downbeat for the Q1 earnings season.
Per the latest Earnings Trend, Energy is likely to have experienced big earnings decline from a year earlier. Per our expectations, the sector’s earnings are likely to have fallen 54.7% from first-quarter 2019 on 12.1% lower revenues.
For the few companies that have already reported, total earnings are down 1% from the same period last year on 5.2% lower revenues, with 100% positive earnings surprises but none beating revenue estimates.
Some Energy Firms Likely to 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, the bottom-line beat ratios so far are suggestive of encouraging numbers this season and is validated by the oilfield service major’s results. Biggies like Schlumberger (SLB - Free Report) , Halliburton (HAL - Free Report) and Baker Hughes bore the brunt of weaker oil and gas prices 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 Such Stocks?
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
Concho Resources Inc. is known for its strategic acreage position in the low-cost Permian Basin. The company, with an Earnings ESP of +3.48% and a Zacks Rank #3, is scheduled to release earnings on Apr 30.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Concho Resources Inc. Price and EPS Surprise
Concho Resources Inc. price-eps-surprise | Concho Resources Inc. Quote
You may also consider USA Compression Partners, LP (USAC - Free Report) , which has a Zacks Rank #3 and an Earnings ESP of +150%. The natural gas compression services provider is scheduled to release earnings on May 5.
USA Compression Partners, LP Price and EPS Surprise
USA Compression Partners, LP price-eps-surprise | USA Compression Partners, LP Quote
NOW Inc. (DNOW - Free Report) also deserves a mention. The stock has a Zacks Rank #3 and an Earnings ESP of +10.26%. NOW, a service provider to the upstream, midstream, and downstream energy industries, is set to release results on May 6.
NOW Inc. Price and EPS Surprise
NOW Inc. price-eps-surprise | NOW Inc. Quote
Another worthwhile option is Talos Energy Inc. (TALO - Free Report) , which has a Zacks Rank #3 and an Earnings ESP of +40%. The Gulf of Mexico-focused energy explorer is scheduled to release earnings on May 6.
Talos Energy Price and EPS Surprise
Talos Energy price-eps-surprise | Talos Energy Quote
Finally we have Viper Energy Partners LP (VNOM - Free Report) , which has mineral interest in prolific oil-rich shale plays like the Eagle Ford and Permian Basin. The company, with an Earnings ESP of +63.08% and a Zacks Rank #3, is scheduled to release earnings on May 4.
Viper Energy Partners LP Price and EPS Surprise
Viper Energy Partners LP price-eps-surprise | Viper Energy Partners LP 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 >>