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Expect an Earnings Beat From These 5 Energy Companies in Q4

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It is still relatively early in the Oil/Energy sector’s Q4 reporting cycle. We believe that the earnings picture is strong and will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the factors influencing the quarterly results this time around first.

Revenue & Earnings Comparison Relative to Q4 of 2020

Investors should know that there is a high correlation between commodity prices and the earnings of energy companies.

So, how does the price of oil and gas compare with the year-ago period?

According to the U.S. Energy Information Administration, in October, November and December 2020, the average monthly WTI crude price was $39.40, $40.94 and $47.02 per barrel, respectively. In 2021, the average prices were $81.48 in October, $79.15 in November and $71.71 in December, i.e., much stronger year over year.

The news is also bullish on the natural gas front. In Q4 of 2020, U.S. Henry Hub average natural gas prices were $2.39 per MMBtu in October and rose to $2.61 in November before edging down to $2.59 in December. Coming to 2021, the fuel traded at $5.51, $5.05 and $3.76 per MMBtu in October, November and December, respectively. In other words, natural gas traded noticeably higher in all three months.

Considering the sharp rise in oil and gas prices, the picture looks rather upbeat for the Q4 earnings season. Per the latest Earnings Trends, energy is on track for a massive earnings boost compared to a year earlier when it was just about in positive territory. Per our expectations, the sector’s earnings are likely to have soared 3,314.2% from fourth-quarter 2020 on 61.8% higher revenues.

Some Energy Firms to Perform Better Than Others

Energy investors have ample reasons to rejoice. In fact, with the surge in oil and natural gas prices, several companies could grow their bottom lines year over year. As a reflection of this, for the 20.8% S&P 500 companies that have already reported, total earnings have been positive compared to losses during the same period last year, while revenues are 20.8% higher.

Buoyed by the positive backdrop, the bottom-line beat ratios so far are suggestive of a majority of companies reporting profits ahead of expectations. An impressive 80% of the energy operators have managed to pull off a positive earnings surprise so far in the fourth quarter, with 100% beating revenue estimates.

In other words, pricing gains do not necessarily indicate that all energy scrips have similar appreciation potential. Investing in companies with an earnings beat potential can fetch handsome returns. This is because a stock generally surges on an earnings beat.

How to Identify Potential Outperformers?

But with several 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

One might start with Murphy USA (MUSA - Free Report) , which is a leading independent retailer of motor fuel and convenience merchandise in the United States. A low-cost, high-volume fuel seller, Murphy USA's stations are located near Walmart supercentres.

MUSA, with an Earnings ESP of +28.82% and a Zacks Rank #1, is scheduled to release fourth-quarter earnings on Feb 2. Murphy USA beat the Zacks Consensus Estimate in three of the last four quarters and met in the other, which resulted in an earnings surprise of 20.9%, on average.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA Inc. Price and EPS Surprise

Murphy USA Inc. Price and EPS Surprise

Murphy USA Inc. price-eps-surprise | Murphy USA Inc. Quote

You may also consider Liberty Oilfield Services Inc. (LBRT - Free Report) , which is #3 Ranked with an Earnings ESP of +2.55%. The Denver, CO-based company is a North American provider of hydraulic fracturing services to upstream energy operators. LBRT offers a wide spectrum of specialized, complementary services and equipment for exploration and production of oil and natural gas.

Liberty Oilfield Services is scheduled to release earnings on Feb 8. LBRT beat the Zacks Consensus Estimate for earnings in two of the last four quarters but missed twice, which resulted in a negative earnings surprise of 48.7%, on average.

EQT Corporation (EQT - Free Report) also deserves mention. The stock has a Zacks Rank of 3 and an Earnings ESP of +1.00%. EQT Corp. is a pure-play Appalachian explorer that produces the largest volume of natural gas in the United States. The company’s core resources comprise a huge inventory of drilling locations that will fetch volumes over the next 15 to 20 years.

EQT Corp. beat earnings estimates in each of the last four quarters, the earnings surprise being 129.5%, on average. The company is set to release results on Feb 9.

EQT Corporation Price and EPS Surprise

EQT Corporation Price and EPS Surprise

EQT Corporation price-eps-surprise | EQT Corporation Quote

Another worthwhile option is Enbridge Inc. (ENB - Free Report) , which has one of the world’s longest and most sophisticated oil and liquids pipeline systems that spreads over 17,000 miles. Enbridge also holds a leading position in the gathering, transportation, processing and storage of natural gas in North America.

ENB — Zacks #3 Ranked with an Earnings ESP of +3.78% — is scheduled to release earnings on Feb 11. Enbridge beat the Zacks Consensus Estimate thrice in the last four quarters and missed in the other, ending up with an earnings surprise of 7.8%, on average.


Enbridge Inc Price and EPS Surprise

Enbridge Inc Price and EPS Surprise

Enbridge Inc price-eps-surprise | Enbridge Inc Quote

Finally, we have Marathon Oil (MRO - Free Report) , which is a leading upstream energy company with operations in the United States and Africa. MRO boasts some 10 years of North American unconventional inventory at a breakeven price of less than $40 per barrel that extends to 15 years if the breakeven points are in the $40-$50 range.

Marathon Oil, with an Earnings ESP of +3.61% and a Zacks Rank #3, is scheduled to release earnings on Feb 16. Marathon Oil surpassed earnings estimates in each of the trailing four quarters, with the average being 37.4%.

Marathon Oil Corporation Price and EPS Surprise

Marathon Oil Corporation Price and EPS Surprise

Marathon Oil Corporation price-eps-surprise | Marathon Oil Corporation Quote

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