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3 Oil & Gas Earnings to Watch on Feb 16: MRO, SUN & PXD

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We are entering the thick of the Q4 earnings season for Oil/Energy, with a host of S&P 500 companies expected to come up with results by the end of this week. Before going into the details of the upcoming releases, let’s take a look at the factors affecting the quarterly results and the report card so far.

Commodity Prices Soar Versus Year-Ago Period

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.

Strength in Realizations to Fuel Impressive YoY Gains

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 the positive territory. Per our expectations, the sector’s earnings are likely to have soared 3,429.2% from fourth-quarter 2020 on 84.8% higher revenues.

Energy investors have ample reasons to rejoice. In fact, with the surge in oil and natural gas prices, a number of companies could improve their bottom lines year over year. As a reflection of this, for the 50% S&P 500 companies that have already reported, total earnings are in the positive territory compared to losses a year earlier, while revenues are 86.8% 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 83.3% of the energy operators have managed to pull off a positive earnings surprise so far in the fourth quarter, with all of them beating revenue estimates.

Key Releases

Given this positive picture, let’s take a glance at how three energy players are placed ahead of their fourth-quarter results slated for release on Feb 16.

Our proprietary model clearly indicates that a company needs to have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Marathon Oil Corporation (MRO - Free Report) is slated to report fourth-quarter results after the closing bell. In the last reported quarter, this independent oil and gas producer’s earnings beat the Zacks Consensus Estimate by 25.8% on stronger liquids price realizations and higher year-over-year production contribution from the Bakken and Eagle Ford regions. Over the trailing four quarters, MRO beat earnings estimates on each occasion, with the average surprise being 37.4%. This is depicted in the chart below:
 

Marathon Oil Corporation Price and EPS Surprise

Marathon Oil Corporation Price and EPS Surprise

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

Our proven model predicts an earnings beat for Marathon this time around too. This is because it has an Earnings ESP of +4.66% and a Zacks Rank #1. The Zacks Consensus Estimate for MRO’s fourth-quarter earnings and revenues is pegged at 55 cents per share and $1.6 billion, respectively (read more: This Is Why Marathon is Set for Strong Q4 Earnings)

Sunoco LP (SUN - Free Report) — a downstream operator focused on motor fuel distribution to convenience stores, independent dealers and commercial customers — is slated to report quarterly results before the opening bell. SUN came up with a disappointing bottom-line performance in the last-reported quarter due to lower motor fuel sales. Sunoco beat the Zacks Consensus Estimate twice in the last four quarters and missed in the other two, ending up with an earnings surprise of 47.3%, on average. This is depicted in the chart below:
 

Sunoco LP Price and EPS Surprise

Sunoco LP Price and EPS Surprise

Sunoco LP price-eps-surprise | Sunoco LP Quote

Things are not looking up for Sunoco this time around, as it carries a Zacks Rank #2 and an Earnings ESP of 0.00%. While the favorable Zacks Rank increases the predictive power of ESP, SUN’s 0.00% ESP makes surprise prediction difficult this earnings season. The Zacks Consensus Estimate for Sunoco’s fourth-quarter earnings and revenues is pegged at $1.14 per share and $5 billion, respectively. (read more: Sunoco to Report Q4 Earnings: What's in the Offing?)

Pioneer Natural Resources Company (PXD - Free Report) , a premier Permian producer holding a large acreage in the shale play, is set to report quarterly results after the closing bell. In the last reported quarter, the Dallas, TX-based upstream operator divulged a better-than-expected bottom line, driven by higher oil equivalent production and price. Regarding earnings surprises, PXD beat the Zacks Consensus Estimate in three of the last four quarters and missed in the other, delivering an earnings surprise of 21%, on average. This is depicted in the chart below:
 

However, our proven model does not conclusively predict an earnings beat for Pioneer natural Resources this time around. This is because PXD has an Earnings ESP of 0.00% and a Zacks Rank #3. The Zacks Consensus Estimate for Pioneer Natural Resources’ fourth-quarter earnings and revenues is pegged at $4.05 per share and $4.8 billion, respectively. (read more: Pioneer Natural to Post Q4 Earnings: What's in Store?)


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Marathon Oil Corporation (MRO) - free report >>

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