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4 Energy Stocks to Buy Before They Report Earnings This Week

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A number of factors will have an effect on energy prices this year and the next.

First, slowing economies are likely to consume less energy, which will ease some of the pressure on demand.

Second, the high temperatures this summer (especially in Europe) are positive for consumption, increasing demand and keeping prices relatively strong.

Third, a lot depends on how much the OPEC and U.S. produce because it will help meet demand and build inventory.

Fourth, the impact of sanctions on Russian production is also an important factor.

Fifth, despite increasing production in the U.S. (EIA expects record levels in both 2022 and 2023) inventories aren’t expected to increase much. With consumption increasing by 2.2 million barrels per day in 2022 and by 2 million b/d in 2023, inventory is expected to increase by only around 0.8 million b/d. Because of the reduction in refinery capacity by around 1 million b/d, their five-year high utilization rates (supported by strong wholesale prices) will not yield more than in the highest levels in the last five years.  

Therefore, the U.S. Energy Information Administration’s (EIA) short-term outlook from earlier this month forecasts that Brent spot prices will average $104 per barrel (b) in 2022 and $94/b in 2023, significantly higher than the $71/b in 2021.

Gasoline prices are expected to average $4.05 per gallon in 2022 and $3.57/gal in 2023. There could be some short-term relief for SPR releases.

Also, despite a 3% increase in natural gas production this year from 2021 levels, inventories at the end of the October filling season will be 6% below the five-year average between 2017 and 2021, and down 5% from 2021.

All these factors point to continued strength in oil & gas stocks, four of which look good for snapping up before earnings this week:

PBF Energy (PBF - Free Report)

Zacks #1 ranked PBF Energy belongs to the Oil and Gas - Refining and Marketing industry (top 1% of Zacks-classified industries). Other than oil and gas, PBF generates revenue from feedstocks, chemicals and lubricants.

Analysts are looking for 21% sequential and 61% year-on-year growth in its refining business, which is substantially all of its business (more than 99%). Operating profits in the segment are expected to jump 418% sequentially and around 415% from last year. Logistics revenue and profit are expected to decline this quarter.

Production has topped analyst expectations in each of the last five quarters although region-wise estimates haven’t always been up to the mark. The East Coast is the only region that consistently beat estimates in the preceding five quarters, with the average surprise at around +3.6%. The Mid-Continent missed by less than a percentage point in a couple of quarters, averaging +1.6%.

The Gulf Cost averaged +2.1%, despite missing in a couple of quarters. The West Coast +0.6% (missed in the last two quarters). Production is expected to increase in all except the West Coast region this quarter.

Analysts expect gross refining margins to soar across regions with the East Coast increasing 68% sequentially (341% year over year), Mid-Continent 72% (101%), Gulf Coast 49% (270%), West Coast 38.8% (173.6%).  Overall, refining gross margin is expected to increase 53.6% from the March quarter and 21.0%.

The company has been missing total throughput estimates in recent quarters. The current estimate calls for 10.6% sequential growth and 5.4% growth year over year, mainly contributed by the East Coast, Mid-Continent and Gulf Coast regions.

Valero Energy (VLO - Free Report)

Zacks #1 (Strong Buy) ranked Valero Energy also belongs to the Oil and Gas - Refining and Marketing industry. It sells transportation fuels and petrochemical products.

Valero’s Refining (around 95% of the business) and Renewable Diesel segments are expected to grow revenue this quarter from both pervious and year-ago quarters, while its Ethanol segment is expected to decline from both periods. Neither Refining nor Ethanol have disappointed in any of the last five quarters, although Renewal Diesel has missed at least a couple of times.

Refining operating income is expected to soar both in the sequential and year-over-year comparison while both Renewable Diesel and Ethanol segment profits are expected to decline year over year. Refining estimates have proved more reliable/conservative in recent quarters.

Per day throughput volume is expected to decline in the U.S. Gulf Coast and U.S. Mid-continent regions. The U.S. West Coast region is expected to grow sequentially and decline year over year while the opposite is the case with the North Atlantic region. Valero has topped analysts’ total throughput volume estimates in the each of the last five quarters.

As with PBF, throughout margin per barrel is expected to soar in all regions.

Exxon Mobil Corp. (XOM - Free Report)

Zacks #2 ranked Exxon Mobil belongs to the Oil and Gas - Integrated – International industry (top 10%).

Analysts are looking for both sequential and year over year growth in Exxon’s after-tax income from Upstream (about 75% of total income), Downstream and Chemicals businesses.

As far as per day petroleum product sales are concerned, heating oil, kerosene and diesel are expected to grow slightly from both previous and year-ago quarters. While stronger growth is expected of specialty products, heavy fuels and aviation fuels, this is from lower bases, so less impactful on totals.  

Sales are in the U.S., Canada, Europe, Asia and Other regions, with U.S. and Europe being the largest, followed by Asia, Other and then Canada. Growth in the to-be-reported quarter is expected to be broad-based across regions.

Refinery throughput is expected to increase in the Asia Pacific and Europe, to decline in Canada while in the U.S., it is expected to decline sequentially while remaining substantially higher than in the year-ago quarter.

Natural gas production is expected to decline slightly from both previous and year-ago quarters.

Chevron Corp. (CVX - Free Report)  

Like Exxon, Zacks #2 ranked Chevron also belongs to the Oil and Gas - Integrated – International industry. The company produces crude, natural gas, NGL and has both upstream and downstream operations.

In the to-be-reported quarter, analysts are looking for very strong growth in both upstream and downstream income. The U.S. is expected to account for an almost equal share of upstream income and more than three-quarters of downstream income.

Growth is expected to be broad-based across geographies. It’s worth keeping in mind, however, that analyst estimates have been off-base in recent quarters, and Chevron has missed estimates a number of times.

But production estimates have proved easier to forecast. The average four-quarter surprise in the net oil equivalent production per day was -.02% in International and +3.56% in U.S. segments. And analyst estimates represent a 6.3% sequential and 14.1% year over year decline in International production. U.S. production is expected to increase around 8% sequentially and 55% year over year.

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