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Will Energy Players SLB & BHGE Beat Earnings in Q1?

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So far in Q1 earnings, 10.4% of the S&P 500 companies have reported results. The total 52 companies belonging to the index saw year-over-year earnings growth of 27.9% on 10.7% higher revenues. Notably, 84.6% of the firms surpassed the Zacks Consensus Estimate for earnings while 78.8% beat the revenue mark.

As of now, we have seen only one S&P 500 release from the Energy space — Kinder Morgan, Inc. (KMI - Free Report) .

Energy Sector Likely to Shine Bright

For the first-quarter of 2018, we expect Energy to eclipse all the 16 Zacks sectors, posting earnings growth of 58.6%. For the January-to-March quarter, we project earnings of $14 billion — the highest in the last four quarters.  

Importantly, Energy will likely be among the major drivers behind the S&P 500’s year-over-year earnings growth. Excluding Energy, the index’s Q1 earnings growth will likely drop to 16.5% from 17.8%.

 

A favorable Q1 oil pricing scenario is expected to back Energy’s performance. Per the U.S. Energy Information Administration, the average West Texas Intermediate (WTI) crude price for the month of January, February and March was reported at $63.70 per barrel, $62.23 and $62.73, respectively. The average oil price never touched $60 in any of the months in the 2015-2017 period, thanks to the extension of OPEC’s production cut deal through 2018-end.

Let’s See How SLB & BHGE ere Placed

Both Schlumberger Limited (SLB - Free Report) and Baker Hughes (BHGE - Free Report) belong to the Zacks Oil & Gas-Field Services industry, which falls under the Energy sector as well. Both stocks are scheduled to report on April 20, before the opening bell.

Let’s employ a few parameters to analyze how the stocks will fare earnings season.

Earnings ESP & History

Earnings ESP is our proprietary methodology for identifying stocks that have a high chance of surprising in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that stocks with a combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our proven model does not conclusively show that Schlumberger will beat estimates this quarter. This is because the stock has an Earnings ESP of -1.72% and a Zacks Rank #3. Though a Zacks Rank of 3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

Baker Hughes is unlikely to beat estimates, since it has a combination of a Zacks Rank #4 (Sell) and Earnings ESP of -2.94%. This is because we caution against Sell-rated stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Schlumberger’s earnings surprise history is impressive. The stock surpassed the Zacks Consensus Estimate in two of the last four quarters, the average positive earnings surprise being 6.4%.

The picture is just the reverse for Baker Hughes, with the stock failing to beat the Zacks Consensus Estimate in two of the past four quarters. The average negative earnings surprise for the last four quarters is recorded at 34.8%.

Earnings Growth

We expect Schlumberger to witness earnings growth of 52% for Q1 2018. Baker Hughes’ projected growth of 250% is much healthier.

Price Performance

Schlumberger stock fell 3.9% during the January-March quarter of 2018, performing better than the respective decline of 7.7% and 12.2% of the industry and Baker Hughes.

Bottom Line

The healthy oil pricing scenario is favorable for both the stocks, as oilfield services players are expected to clinch more contracts for setting up oil wells.

Although Baker Hughes scores way higher in terms of earnings growth, the stock is unlikely to beat the Zacks Consensus Estimate. Meanwhile, Schlumberger has higher chances of trumping estimates.

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Schlumberger Limited (SLB) - free report >>

Kinder Morgan, Inc. (KMI) - free report >>

Baker Hughes Incorporated (BHGE) - free report >>


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