The second-quarter earnings season is picking up pace with several companies reporting financial results this week. In fact, as many as 117 S&P 500 members are set to release their quarterly results this week.
So far, 171 S&P 500 members – 34.2% of the index’s total market capitalization – have reported second-quarter results. Per the Earnings Trends report, dated Jul 26, total earnings for these companies increased 8.8% on 3.4% growth in revenues, both on a year-over-year basis. While 78.9% companies beat earnings estimates, 70.8% posted better-than-expected revenues.
We are in the thick of this earnings season, with more than 44% S&P 500 members expected to release numbers by the end of this week.
At this stage, we don’t have too many results from the Energy sector.
Energy Sector’s Performance
Last year, Energy was the strongest S&P sector performer with a solid return of 24%. In particular, November's historic OPEC-led production cut deal managed to alleviate a supply glut to buoy oil prices and stabilize them around the psychologically important $50 per barrel threshold. The commodity was on a stellar run on optimism surrounding the agreement and the encouraging outlook for oil stocks.
The seemingly positive developments encouraged investors to bet on firming prices for 2017, while the oil industry is pinning hopes on a turnaround. True to the strong sentiments, U.S. oil prices reached around $55 per barrel in late February, the highest in 19 months.
However, the situation is strikingly different now, with the commodity floundering in recent weeks. By Jun 21, crude had shed more than 20% from its February highs and officially plunged into bear territory. In fact, prices declined 14.3% for the first half of the year, registering the worst performance since 1998.
Let's take a look at how oil and gas prices behaved during the second quarter of this year.
The picture looks rather encouraging for the upcoming Q2 earnings season. This is not surprising, considering that oil and gas are both averaging higher compared with the second quarter of 2016 when the energy companies reported unusually low bottom line. While earnings for the Oil/Energy sector are set to scale a massive 271.4% – the highest year-over-year growth among all sectors – the top line is likely to show growth of 15.1% from second-quarter 2016 levels.
Stocks to Watch for Earnings on Jul 28
Let’s see what’s in store for four energy companies expected to come up with June quarter numbers on Jul 28.
Exxon Mobil Corporation (XOM - Free Report) is the world’s largest publicly traded oil company.
Last quarter, the company reported earnings of 95 cents per share that beat the Zacks Consensus Estimate of 85 cents. The quarterly earnings also increased from 43 cents recorded a year ago. The company beat the Zacks Consensus Estimate in three of the prior four quarters with an average positive earnings surprise of 1.46%.
Our proven model does not conclusively show that ExxonMobil will beat estimates this quarter. This is because ExxonMobil has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Conversely, 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Contract drilling services provider Baker Hughes, a GE company (BHGE - Free Report) is expected to report before the opening bell. It was formerly known as Baker Hughes and is based in Houston, U.S.
Baker Hughes has a mixed history, having missed the Zacks Consensus Estimate in two of the last four reports. For the quarter to be reported, the company has an Earnings ESP of 0.00%, while it carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult.
An independent energy exploration company with producing properties mainly in the continental U.S., Cabot Oil & Gas Corp. (COG - Free Report) , is expected to report second-quarter 2017 results, before the opening bell.
Last quarter, this Houston, TX-headquartered upstream player recorded earnings in line with the Zacks Consensus Estimate. The results were hamstrung by higher costs but received a boost from higher production.
Coming to earnings surprise history, the company has an unenviable record. It missed estimates in one of the last four quarters, was in line in two quarters and beat estimates in one.
An earnings beat looks unlikely for Cabot. For the quarter to be reported, Cabot has an Earnings ESP of 0.00%, while it carries a Zacks Rank #4.
San Ramon, CA-based Chevron Corporation (CVX - Free Report) is a leading integrated energy player in the world. The company’s earnings surprise history is impressive as it delivered an average positive earnings surprise of 32.36% over the last four quarters.
Our proven model does not conclusively show that an earnings beat is likely for Chevron in Q2, This is because the company has a Zacks Rank #4 and an Earnings ESP of 0.00%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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