The Q3 earnings season has just begun and we are yet to get a clear picture of the overall market conditions as only 34 of the S&P 500 companies have reported quarterly results so far. With 80 S&P 500 companies set to release their earnings this week, we expect a clearer insight into the performance of the various sectors. Though Q3 has started on a strong note for some sectors, the prospects of the energy sector do not seem too bright at the moment.
The 34 S&P 500 companies that have released their financial numbers as of Oct 14, 2016 account for 8.9% of the index’s total market capitalization. Notably, total earnings for these companies has risen 1.3% from the year-ago period due to a 2.9% increase in revenues. Also, 79.4% of these companies posted an earnings beat, while 64.7% topped revenue expectations.
The energy sector has been a drag on the overall market over the past few quarters and the situation is unlikely to change even in Q3. Per the Earnings Trends report, the general outlook is bearish as the sector is expected to register a massive 71.9% year-over-year decrease in earnings due to an 11% decline in revenues. Excluding the impact of the energy sector, the S&P 500 Index would witness earnings growth of 1.3% on the back of 2.8% increase in revenues.
However, the market conditions can be better assessed after energy majors like Schlumberger Ltd. and Southwestern Energy Co. report their Q3 results this week. Here, we have compiled a list of three players from the broader energy space that are expected to report quarterly numbers on Oct 20.
Schlumberger Ltd. (SLB - Analyst Report) is set to report Q3 results on Oct 20, after the closing bell. Last quarter, Schlumberger posted a positive earnings surprise of 4.55%. Moreover, the company posted an average positive earnings surprise of 1.98% over the last four quarters. Despite a difficult operating environment owing to oil price weakness, Schlumberger’s financial strength and technological leadership have supported its excellent earnings track record.
However, an earnings beat looks uncertain for Schlumberger as the company carries a Zacks Rank #4 and an Earnings ESP of 0.00%. Note that a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates. Conversely, we caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Independent natural gas operator, Southwestern Energy Co. (SWN - Analyst Report) is expected to release Q3 results on Oct 20, after the market closes. The Spring, TX-based upstream player has an impressive earnings surprise history. The company managed to beat estimates in all of the last four quarters with an average beat of 65.38%. In the preceding three-month period, it delivered a positive earnings surprise of 18.18%.
Our proven model does not conclusively show that Southwestern is likely to beat earnings this quarter. The company has a Zacks Rank #3 but an Earnings ESP of -28.57%.
Finally, we have independent oil and natural gas producer Synergy Resources Corp. (SYRG - Snapshot Report) coming out with Q3 numbers on Oct 20. Our model indicates that the Denver, CO-based upstream player with primary operations in the Wattenberg Field is likely to beat on earnings this time around. This is because Synergy Resources is a Zacks Rank #3 stock but has an Earnings ESP of 100.00%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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