We are entering the heart of the Q3 earnings season, with more than 170 S&P 500 members coming up with results this week.

Picture Emerging Thus Far

We now have Q3 results from 116 S&P 500 members that combined account for account for 30% of the index’s total market capitalization. Total earnings for these companies are up 3.3% from the same period last year on 1.8% higher revenues, with 80.2% beating on earnings and 62.9% beating revenue estimates. (Data from the Earnings Trends report dated Oct 21, 2016).

Energy: A Drag but Not as Bad as Thought

Expectedly, the ‘Energy’ sector has been a big drag on the aggregate growth picture. For the few sector components on the S&P 500 index that have reported Q3 results, total earnings are down 54.6% on 20.6% lower revenues.

But the Energy sector’s results are so far better than expected, with 80.0% of companies beating earnings estimates – though undoubtedly aided by low expectations.

Oil & Gas Performance in Q3

Unlike the last quarter, in which oil advanced more than 26% sequentially to notch up the best quarterly percentage gain in seven years, the Jun-Sep 2016 period turned out to be a rather flat one with crude barely advancing. In fact, the West Texas Intermediate (WTI) crude futures during the third quarter hovered around the $45 per barrel mark, flat with the second quarter and down from $46.50 in the same period last year.

On the other hand, natural gas popped through the $3 barrier for the first time in more than a year during the third quarter. Successive below-average builds with strong power sector consumption have been cutting into the year-over-year storage surplus. In fact, natural gas prices have doubled since hitting 17-year lows of around $1.6 per MMBtu in the first quarter.

E&P Companies in Focus

The energy exploration and production (E&P) sub-sector serves as a pretty good proxy for oil/gas price fluctuations and can act as an excellent investment medium for those who wish to take a long-term exposure within the energy sector.

This industry includes companies focused on finding hydrocarbon reservoirs, drilling oil and gas wells, and producing and selling these materials to be later refined into products such as gasoline.

While all oil/gas-related stocks stand to move with fluctuating commodity prices, companies in the E&P sector tend to be the most important, as their product’s values are directly dependent on oil/gas prices.

Stocks to Watch for Earnings on Oct 26

Let’s see what’s in store for five such companies expected to come up with third-quarter numbers on Wednesday, Oct 26. Let’s take a look at how things are shaping up at their end.

One of Canada’s biggest energy firms and the largest oil sands outfit, Suncor Energy Inc. (SU Quick QuoteSU - Free Report) , is expected to report third-quarter 2016 results after the closing bell. 

In the second quarter of 2016, this Calgary, Alberta-headquartered energy company reported weaker-than-expected numbers on production shutdown following wildfire in the Fort McMurray region.

An earnings beat is uncertain for Suncor Energy this time around too. This is because, as per our proven model, a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP to beat on earnings. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

For the quarter to be reported, Suncor Energy has an Earnings ESP of 0.00%, while it carries a Zacks Rank #3.

Simultaneously, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Headquartered in El Dorado, AR, Murphy Oil Corp. (MUR Quick QuoteMUR - Free Report) is also set to report third-quarter 2016 results after the closing bell. The company explores for and produces crude oil, natural gas and natural gas liquids worldwide. Coming to earnings surprise history, Murphy Oil has an excellent track record: its beaten estimates in each of the last four quarters at an average rate of 23.62%.

Our proven model shows that Murphy Oil is likely to beat on earnings in the to-be-reported quarter as well, given the combination of a Zacks Rank #3 and an Earnings ESP of +9.52%. (Read more: Can Murphy Oil Continue to Surprise in Q3 Earnings?)

QEP Resources Inc. , based in Denver, CO will come up with third-quarter 2016 results tomorrow after the closing bell. Coming to earnings surprise history, the Permian Basin-focused upstream player has a solid track of having beaten estimates in the last four quarters.

QEP Resources carries a Zacks Rank #3 and has an Earnings ESP of +4.35%, again making it a prime candidate for an earnings beat.

Hess Corp. (HES Quick QuoteHES - Free Report) is another exploration and production company to report third-quarter results tomorrow – this time before the market opens.

Headquartered in New York, Hess engages in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids, and natural gas. The company reported better-than-expected numbers in the second quarter on the back of successful cost reduction efforts. Moreover, Hess has a good track of earnings surprises, having beaten estimates in three of the last four quarters at an average rate of 5.70%.

However, with an earnings ESP of 0.00% and a Zacks Rank #3, our proven model shows that an earnings beat is uncertain for Hess this time around.

Finally, we have independent oil and natural gas producer Antero Resources Corp. (AR Quick QuoteAR - Free Report) coming up with third-quarter numbers tomorrow after the market closes.

Following an outperformance beat last time around, our model indicates that the company is likely to beat on earnings this time also. This is because Antero Resources has an Earnings ESP of +25.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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