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After XOM's Earnings Miss, Smaller Energy Companies May Be the Smarter Play

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Energy giant Exxon Mobil (XOM - Free Report) reported an earnings miss on Friday morning and unforgiving investors responded by taking the stock 3.5% lower.  Earnings in Q1 were $1.09, missing the Zacks Consensus Estimate of $1.14.  Revenues beat the consensus estimate, coming in at $68.2B versus an expected $66.07. 

Amid Rising Oil Prices, Why the Miss?

Exxon cited strong performance in its American production business and refining in North America with upstream earnings in the U.S a record $429M, up from a loss of $18M in Q1 2017. The company blamed the disappointing net results on increased costs and lower margins in its international operations.  Its chemicals business was also a drag on earnings with falling margins resulting in profits that were 14% lower than last year.

With rising energy prices, increased U.S. production and strong demand, investing in smaller U.S. oil and gas companies is like getting the best performing parts of Exxon’s business but without the underperforming international and chemical segments.

Perfect Zacks Scores

Delek US Holdings (DK - Free Report) specializes in refining, marketing and delivery of U.S. petroleum products across the Southern United States.  Operating seven refineries stretching from California to Arkansas and a vast network of distribution channels, Delek boasts the largest exposure to the Permian Basin of any independent refiner. Having earned $1.26/share in 2017, seven analyst upgrades in the past 30 days bring the current Zacks Consensus Estimate for 2018 to $3.17. 

Trading at a forward P/E 16.6 -in line with the industry-  and with accelerating earnings and outstanding recent price performance, Delek earns not only a Zacks Rank #1 (Strong Buy), but also Value, Growth and Momentum scores of “A”. 

Lone Star Stars

Headquartered in Houston, TX, Wildhorse Resource Development Corporation (WRD - Free Report) focuses on oil and natural gas exploration and production, primarily in Texas and Louisiana.  Taking advantage of increased yields in shale extraction, it has seen its outputs grow steadily over the past few years.  Investors have taken note, pushing the share price from a low of $10.68 a year ago to a 52-week high of $25.53.  Six analyst upgrades in the last 60 days earn Wildhorse a Zacks Rank #1 (Strong Buy).  Thanks to it’s strong price performance of late, it carries a Momentum Style score of “A”.

Having earned just $0.43/share in 2017, the Zacks Consensus estimate for 2018 now stands at $1.67/share for 2018, up 35% in the past 60 days.

Sugarland, Texas-based CVR Refining, LP (CVRR - Free Report) operates in Kansas and Oklahoma, refining the petroleum products extracted form the large and increasingly productive deposits in the central U.S.  A Zacks Ranks #1 (Strong Buy), CVR blew away the Zacks Consensus Earnings Estimate in Q1, posting a net of $0.59/share versus the expectation of $0.12/share.  The full year estimate for 2018 now stands at $1.55/share, up dramatically from the $0.60 they posted in 2017.

CVR has also seen strong price performance of late, rising from a low of $12.30 in March to a recent high of $17.65

Cherry-Picking

Sometimes, breaking down a quarterly report from a huge company like Exxon Mobil can tune us in to which parts of the business are working the best and point us toward more focused investments in smaller companies that are engaged in those same segments.



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