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, on board.
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).
While 4% quarterly earnings growth may look quite insignificant, 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 the 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 14
Let’s see what’s in store for three energy firms expected to come up with third-quarter numbers on Monday, Nov 14.
A U.S.-listed, independent oil and gas company with assets in Papua New Guinea, InterOil Corp. (IOC - Free Report) is expected to report third-quarter 2016 results before the opening bell.
In the preceding three-month period, the Singapore-based upstream player missed earnings estimates, affected by significantly higher-than-expected general and administrative costs.
Coming to the earnings surprise history, the company has a bad record: it missed estimates in three of the last four quarters, resulting in an average negative surprise of 143.23%.
An earnings beat looks uncertain for InterOil this time around too. 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, InterOil has an Earnings ESP of 0.00%, while it carries a Zacks Rank #3. 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.
BP Prudhoe Bay Royalty Trust (BPT - Free Report) is another energy firm to report quarterly results Monday. Headquartered in Houston, TX, BP Prudhoe Bay Royalty Trust offers a partial ownership in British oil giant BP plc’s (BP - Free Report) Prudhoe Bay oil field. The trust owners – with interest in the field – get a cash payment from the revenue that BP earns after deducting production costs and taxes.
With an Earnings ESP of 0.00% and Zacks Rank #3, our proven model shows that an earnings beat is unlikely for BP Prudhoe Bay Royalty Trust in the to-be-reported quarter.
Then we have Ithaca Energy Inc. (IACAF - Free Report) coming up with third-quarter numbers on Nov 14 morning. Aberdeen, U.K.-based Ithaca Energy is an offshore oil and gas finder with producing assets in the North Sea.
Regarding earnings surprise history, the company can boast a good track record: its beaten estimates comfortably in each of the last two quarters.
However, our model indicates that Ithaca Energy is unlikely to beat on earnings this time. This is because the exploration and production entity has an Earnings ESP of 0.00% and a Zacks Rank #3.
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