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

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The price of West Texas Intermediate crude was trading well above $70 per barrel most of the time in the December-end quarter of 2021. The commodity even touched $84 per barrel in early November last year. Thus, in comparison with the year-ago comparable quarter, the commodity price has improved significantly. The surge in oil price realizations changed the playing field for upstream players in the fourth quarter.

The favorable commodity pricing scenario, owing to the strong recovery in energy demand, is expected to have triggered higher activities in the upstream market. The fuel demand recovery was triggered primarily by the rolling out of coronavirus vaccines at a massive scale.

What Does it Mean for Energy Players?

The rising commodity prices encouraged oil explorers and producers to gradually return to the shale resources in the United States. Notably, in the week through Oct 1, 2021, the count of oil drilling rigs was 428 in U.S. resources, which increased to 480 in the week through Dec 31, 2021, per the weekly rig count data as published by Baker Hughes Company (BKR - Free Report) . The rotary rig count, issued by Baker Hughes, usually gets published in major newspapers and trade publications.

Thus, it is quite evident that upstream businesses significantly improved in the December-end quarter amid the pandemic. The improvement is getting reflected in the latest Zacks Earnings Trend report, which suggested that the energy sector’s profitability was barely in the positive territory in the year-ago quarter. However, it is expected to earn $30.9 billion in the December-end quarter of 2021.

In the natural gas business front, Baker Hughes’ data suggested that the number of gas drilling rigs in the United States increased to 106 in the week through Dec 31, 2021, from 99 in the week through Oct 1, 2021, owing to increased commodity prices. Thus, the favorable commodity price is likely to have benefited natural gas explorers and producers.

How to Identify Potential Winners?

It is worth keeping an eye on companies with an earnings beat potential, as 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

Below we have picked three industry players that are scheduled to report their fourth-quarter 2021 results soon.

Diamondback Energy, Inc. (FANG - Free Report) is an independent oil and gas exploration & production companyin the United States. The upstream player primarily focuses on the Permian Basin, where it has around 414,000 net acres. Diamondback Energy, with an Earnings ESP of +0.91% and a Zacks Rank #3, is scheduled to release quarterly earnings on Feb 22. You can see the complete list of today’s Zacks #1 Rank stocks here.

As far as earnings surprises are concerned, the Midland, TX-based company beat the Zacks Consensus Estimate in all of the prior four quarters, delivering an earnings surprise of 11.7%, on average. The Zacks Consensus Estimate for Diamondback Energy’s earnings is pegged at $3.38 per share, suggesting a massive improvement from the prior-year reported figure.

Diamondback Energy, Inc. Price and EPS Surprise

 

You may also consider Viper Energy Partners LP (VNOM - Free Report) , a subsidiary of Diamondback Energy, with a Zacks Rank #3 and an Earnings ESP of +14.93%. VNOM generates strong and steady royalty income from mineral interests in the Eagle Ford and Permian Basin. 

Viper Energy beat the Zacks Consensus Estimate in three of the prior four quarters and missed the same once, delivering an earnings surprise of 103.13%. It is scheduled to release quarterly earnings on Feb 22. The Zacks Consensus Estimate for VNOM’s earnings is pegged at 19 cents per share, suggesting an improvement of 58.3% from the prior-year reported figure.

Viper Energy Partners LP Price and EPS Surprise

 

Finally, we have PDC Energy Inc. (PDCE - Free Report) , which has a Zacks Rank #3 and an Earnings ESP of +3.50%. The Denver, CO-based company, which is focused on the Wattenberg Field in Colorado and the Delaware Basin in Texas, is scheduled to release quarterly earnings on Feb 28.

Over the trailing four quarters, PDC Energy surpassed the Zacks Consensus Estimate on all occasions, the surprise being 51.06%, on average. The Zacks Consensus Estimate for PDCE’s earnings is pegged at $2.40 per share, suggesting a massive improvement from the prior-year reported figure.

PDC Energy, Inc. Price and EPS Surprise

 

PDC Energy, Inc. Price and EPS Surprise

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

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