The earnings picture for the energy sector is shaping up remarkably well. In fact, energy has been the biggest contributor to S&P 500 earnings growth with earnings from 74.2% of the sector’s capitalization reported so far up 226.2% on 15.5% revenue growth.
Though earnings beat ratio of 50% looks dull, revenue surprise of 81.3% is impressive. Additionally, good tidings have pushed the price of energy stocks higher by an average 1.2% against 0.5% loss for the S&P 500 in response to earnings announcements (read: Sector ETFs & Stocks to Tap Q2 Earnings Growth).
However, reports from two U.S. supermajor oil producers – Exxon Mobil (XOM - Free Report) and Chevron (CVX - Free Report) – on July 28 led to mixed reactions in the broad energy space. XOM missed while Chevron topped our earnings estimates.
Earnings in Focus
The largest U.S. oil company, Exxon Mobil, reported earnings per share of 78 cents, falling short of the Zacks Consensus Estimate by a nickel but improving from the year-ago earnings of 41 cents. However, revenues climbed 9% year over year to $62.88 billion and were well ahead of our $61.16 billion estimate. The stock shed 1.5% on earnings miss.
Chevron, which trails Exxon Mobil, topped on both fronts. Earnings per share came in at 91 cents, outpacing the Zacks Consensus Estimate by a couple of cents and improving from the year-ago earnings of 48 cents. Revenues rose 18% year over year to $34.48 billion and edged past our estimate of $31.18 billion. Shares of CVX were up 1.9% on the day.
Investors should note that both stocks have a Zacks Rank #4 (Sell) and a poor Zacks Industry rank in the bottom 14%.
ETFs in Focus
The diverging results and stock reactions led to uneven trading in the energy ETFs having the largest allocation to these energy behemoths on the day. These funds also have a Zacks ETF Rank #4 with a High risk outlook (see: all the energy ETFs here).
iShares U.S. Energy ETF (IYE - Free Report)
This ETF tracks the Dow Jones U.S. Oil & Gas Index, giving investors exposure to the broad energy space. It holds 69 stocks in its basket with AUM of $1.1 billion and average daily volume of about 741,000 shares. The product charges 44 bps in fees per year from investors. Exxon Mobil and Chevron occupy the top two positions in the basket, taking the bigger chunk of assets at 24.4% and 14.3%, respectively. From a sector perspective, integrated oil & gas makes up for 42.1% share while oil exploration & production, and oil equipment & services round off the next two spots with a double-digit exposure each. The product lost 0.3% following the results from two oil giants.
Energy Select Sector SPDR (XLE - Free Report)
This is the largest and most popular ETF in the energy space with AUM of $15.4 billion and average daily volume of around 15.7 million shares per day. Expense ratio comes in at 0.14%. The fund follows the Energy Select Sector Index and holds 34 securities in its basket. XOM and CVX occupy the top two spots with 21.9% and 16.2% share, respectively. In terms of industrial exposure, oil, gas & consumable fuels accounts for nearly 84.9% of the portfolio while energy equipment & services takes the remainder. The ETF was modestly down 0.1% (read: Energy to Drive Q2 Earnings: Will ETFs Rebound?).
Fidelity MSCI Energy Index ETF (FENY - Free Report)
The fund follows the MSCI USA IMI Energy Index, holding 129 stocks in its basket. Out of these, XOM and CVX take the top two spots at 22.9% and 14.2%, respectively. In terms of industrial exposure, oil, gas & consumable fuels accounts for nearly 83.9% of the portfolio while energy equipment & services takes the remainder. The product charges 8 bps in annual fees and trades in a good volume of about 217,000 shares. It has accumulated $428 million in its asset base and lost 0.2% on the day.
Vanguard Energy ETF (VDE - Free Report)
This fund manages about $3.8 billion in asset base and provides exposure to a basket of 134 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index. The product sees good volume of about 308,000 shares and charges 10 bps in annual fees. Here again, Exxon and Chevron are the top firms with 22.8% and 14.2% allocation, respectively. Though the product is skewed toward the integrated oil & gas sector with 40% of assets, oil exploration and production, and oil equipment services also provide a nice mix in the portfolio with a double-digit exposure each. VDE is down 0.3% following the results.
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