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5 Oil Stocks Set to Pull Off a Beat This Earnings Season

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The price of West Texas Intermediate (WTI) crude oil has improved roughly 25% through the December quarter of 2020. The approval of two coronavirus vaccines in the last month of the fourth quarter by U.S. health regulators boosted investor confidence in fuel demand recovery, lifting crude price.

However, the pricing scenario was definitely not as healthy as the pre-pandemic fourth-quarter 2019 levels. In the December quarter of 2019, the price of WTI crude traded consistently above the $50-per-barrel mark. In comparison, through the fourth quarter of 2020, the commodity traded below the mark.

The business scenario was much better when it comes to natural gas. In the December quarter of 2020, the price of natural gas rose 47.5%. Moreover, the price of the commodity was healthier in the first and last month of the fourth quarter of 2020 as compared to the year-ago comparable months, thanks to strong LNG exports. 

What Does it Mean for Energy Players?

Thus, although crude price failed to cross the pre-coronavirus mark, prices improved in the fourth quarter of 2020 on positive vaccine development. This encouraged oil drillers to gradually return to the shale resources in the United States. Notably, in the week through Oct 2, 2020, the count of oil drilling rigs was 189 in U.S. resources, which increased to 267 in the week through Dec 31, 2020, per the weekly rig count data as published by Baker Hughes Company (BKR - Free Report) .

Hence, it is quite evident that although upstream businesses started improving in the December quarter amid the pandemic, activities couldn’t spring back to the pre-pandemic levels of the fourth quarter of 2019. Overall, lower oil price and production are likely to have affected energy majors’ upstream operations.

In the natural gas business front, Baker Hughes’ data suggested that the tally for gas drilling rigs in the United States increased to 83 in the week through Dec 31, 2020 as compared to 74 in the week through Oct 2, 2020, thanks to increased commodity price. Thus, favorable commodity price is likely to have benefited natural gas explorers and producers but upstream firms saw a year-over-year drop in commodity volumes, probably due to the pandemic.

How to Identify Potential Outperformers?

In the light of the fourth quarter business scenario, it’s worthwhile to invest in companies with an 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 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

In the United States, EOG Resources, Inc. (EOG - Free Report) is among the leading oil and natural gas exploration companies. The upstream player’s proved reserves spread across United States, Trinidad and China. The company, with an Earnings ESP of +16.40% and a Zacks Rank #2, is scheduled to release earnings on Feb 25.You can see the complete list of today’s Zacks #1 Rank stocks here.

As far as earnings surprises are concerned, the Houston, TX-based company beat the Zacks Consensus Estimate in two quarters and missed in two, delivering an earnings surprise of 24.1%, on average.

EOG Resources, Inc. Price and EPS Surprise

EOG Resources, Inc. Price and EPS Surprise

EOG Resources, Inc. price-eps-surprise | EOG Resources, Inc. Quote

You may also consider PDC Energy Inc. (PDCE - Free Report) , which has a Zacks Rank #1 and an Earnings ESP of +11.97%. 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 one, the surprise being a negative 2,837.01%, on average.

PDC Energy, Inc. Price and EPS Surprise

PDC Energy, Inc. Price and EPS Surprise

PDC Energy, Inc. price-eps-surprise | PDC Energy, Inc. Quote

Vermilion Energy Inc. (VET - Free Report) also deserves a mention. The stock has a Zacks Rank #2 and an Earnings ESP of +24.32%. Vermilion, creating value for shareholders through exploration and production activities in prolific resources spreading across North America, Europe and Australia, is set to release results on Mar 8.

The company beat estimates for the bottom line in three of the last four quarters and missed in the other, the earnings surprise being 6.50%, on average.

Vermilion Energy Inc. Price and EPS Surprise

Vermilion Energy Inc. Price and EPS Surprise

Vermilion Energy Inc. price-eps-surprise | Vermilion Energy Inc. Quote

Finally, we have Cactus, Inc. (WHD - Free Report) , which is a leading producer of highly engineered wellhead and pressure control equipment. The varieties of the company’s equipment are being rented or sold for oil and gas onshore unconventional wells. Thus, the improvement in drilling activities during the December quarter is likely to have increased demand for the company’s range of equipment being utilized by customers during the production phases of wells.

The company, with an Earnings ESP of +32.35% and a Zacks Rank #2, is scheduled to release earnings on Feb 24.

Cactus, Inc. Price and EPS Surprise

Cactus, Inc. Price and EPS Surprise

Cactus, Inc. price-eps-surprise | Cactus, Inc. Quote

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