We are almost at the end of the Q3 earnings season with only a few companies left to report to their quarterly financial results.
Picture Emerging Thus Far
So far, 423 S&P 500 members – 87.1% of the index’s total market capitalization – have unveiled their Q3 numbers. Total earnings for these companies have inched up 3.6% on 2.4% higher revenues, on a year-over-year basis. Our Earnings Preview report dated Nov 4, 2016, indicates that 72.8% of these companies delivered positive earnings surprises, while 55.1% beat revenue estimates. With 31 S&P 500 members set to release their quarterly results this week the overall earnings picture will become clearer.
Will the Energy Sector Remain a Drag on Earnings?
The ‘Oils/Energy’ sector remains weak and continues to be a drag on overall growth. The results of the 94.4% sector components on the S&P 500 Index that have reported Q3 results – including behemoths like Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) – indicate that total earnings plunged 63.3% due to a 12.8% decline in revenues, on a year-over-year basis.
Despite being the most underperforming sector, an overwhelming 73.5% Oils/Energy companies managed to deliver an earnings beat, albeit due to very low estimates.
Q3 Oil & Natural Gas Pricing
The pricing scenario for natural gas was much better in the third quarter, both on a sequential and an annualized basis. However, oil prices were weaker than the July-September quarter of 2016. Despite the persistent weakness in crude, the commodity price improved significantly from the mid-February lows. The improvement in commodity prices is undoubtedly favorable for upstream energy players as these firms would now be able to carry on exploration and production activities by hiring more drillers.
This is evidenced by the substantial increase in the U.S. rig count in recent times as indicated by Baker Hughes Inc.’s (BHI) – the company’s data issued since 1944 is as an important yardstick for energy service providers in gauging the overall business environment of the oil and gas industry – rig count for Sep 2016. In the U.S., the total number of rigs increased from the Aug 2016 count owing to a rise in the number of land rigs.
Developments in this front should be favorable for upstream energy players in terms of improved production and prices. This scenario is also favorable for companies providing compression services to upstream players.
Stocks to Watch for Earnings on Nov 8
Let’s see what’s in store for three oil companies that are expected to come up with Q3 numbers on Nov 8.
Midland, TX-based Concho Resources Inc. (CXO - Free Report) is an oil and gas exploration and production (“E&P”) company. Concho Resources is expected to report Q3 results after the closing bell. The company delivered an average positive earnings surprise of 119.44% over the last four quarters.
Our proven model shows that Concho Resources is unlikely to beat earnings because it does not have the right combination of two key ingredients. This is because the stock has Earnings ESP of 0.00% and a Zacks Rank #3 (Hold). It is to be noted that for an earnings beat a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Headquartered in Midland, TX, Diamondback Energy Inc. (FANG - Free Report) is expected to release Q3 results before the opening bell. Our proven model shows that Diamondback Energy is likely to beat earnings because it has an Earnings ESP of +2.86% and a Zacks Rank #2. You can seethe complete list of today’s Zacks #1 Rank stocks here.
USACompression Partners LP (USAC - Free Report) is set to report Q3 results before the opening bell. Our proven model does not conclusively show that USA Compression is likely to beat earnings because it has an Earnings ESP of -37.50% and a Zacks Rank #4. Please note we caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
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