We have reached the final stretch of the Q3 earnings season with results from 445 S&P 500 members that combined account for more than 91% of the index’s total market capitalization.
Q3 Reflects Improving Trends in Growth
Total earnings for these companies are up 4% from the same period last year on 2.7% higher revenues, with 72.8% positive earnings surprises and 55.3% beating revenue estimates. (Data from the Earnings Trends report dated Nov 9, 2016).
A 4% quarterly earnings growth may look quite insignificant but what’s encouraging is that the figure is a considerable improvement over the ones observed over the previous five quarters. Should the positive trend continue throughout the quarter, it will represent the first positive growth for the S&P 500 index after five quarters of back-to-back declines.
Energy: Another Quarter of Weak Results but Better than Expected
Expectedly, the ‘Oils/Energy’ sector has been a big drag on the aggregate growth picture. For the 97.2% sector components on the S&P 500 index that have reported Q3 results – including behemoths like Exxon Mobil Corp. (XOM - Free Report) and Chevron Corp. (CVX - Free Report) – total earnings are down 63% on 12.8% lower revenues.
However, despite being the largest decliner among major sectors, an overwhelming 74.3% Oils/Energy companies have beaten 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.
Stocks to Watch for Earnings on Nov 11
Let’s see what’s in store for two energy firms expected to come up with third-quarter numbers on Friday, Nov 11.
A U.S.-listed, pure-play offshore driller - primarily in international markets, Atwood Oceanics Inc. is expected to report fiscal fourth-quarter 2016 results after the closing bell.
In the preceding three-month period, the Houston, TX-based drilling contractor beat earnings estimates, helped by operating efficiency and cost reduction.
Coming to earnings surprise history, the company has an excellent record: it beat estimates in each of the last four quarters, resulting in an average positive surprise of 19.57%.
But an earnings beat is uncertain for Atwood Oceanics this time around. This is because, as per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat earnings. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
For the quarter to be reported, Atwood Oceanics has an Earnings ESP of -1.75%, while it carries a Zacks Rank #3. While a Zacks Rank #3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.
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.
TerraForm Global Inc. is another energy player to report quarterly results on Friday. Headquartered in Bethesda, MD, TerraForm Global is a diversified renewable energy company with assets around the world.
With an Earnings ESP of 0.00% and Zacks Rank #3, our proven model shows that an earnings beat is unlikely for TerraForm Global in the to-be-reported quarter.
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