Oil & Gas is one of the major sources of energy in the world. The rising oil production coupled with improving commodity prices provide greater growth prospects for the companies in the industry. Investing in fundamentally strong, mature oil and gas companies is safe as they provide stable earnings and cash flow rewards to investors.
As of now, 95% of the S&P 500 companies have already reported their first-quarter 2018 results. The Oil & Energy Sector registered 75.7% earnings growth and 14.2% revenue growth in the quarter.
In this article, we will do a comparative analysis of two prominent Oil & Gas companies — Occidental Petroleum Corporation (OXY - Free Report) and ConocoPhillips (COP - Free Report) — to figure which one performed better and is a suitable investment option right now.
Earnings & Surprise Trend
Occidental Petroleum reported first-quarter 2018 earnings of 92 cents per share, beating the Zacks Consensus Estimate of 71 cents by 29.6%. In the year-ago quarter, the company reported earnings of 15 cents.
ConocoPhillips reported first-quarter 2018 adjusted earnings of 96 cents per share, beating the Zacks Consensus Estimate of 74 cents by 29.7%. In the prior-year quarter, the company incurred a loss of 14 cents.
Occidental Petroleum expects second-quarter production to be in the range of 628,000-648,000 barrels of oil equivalent per day (boe/d). The company expects 2018 production between 645,000 and 665,000 boe/d, up from the prior expected range of 640,000-665,000 boe/d. It expects second-quarter’s Permian Resources production within 188,000-198,000 boe/d. The company anticipates 2018 Permian Resources production in the range of 198,000-210,000 boe/d, up from the prior guidance of 195,000-209,000 boe/d.
Occidental Petroleum is executing a strategic initiative by disinvesting in areas with lower-margin, lower-return oil and gas production, to fund the capital requirement in areas with higher-margin, higher-return production, such as the Permian Resources business.
ConocoPhillips provided production guidance in the range of 1,170-1,210 thousand barrels of oil equivalent (MBOED) for second-quarter, 2018. For the full year, production projection was raised from 1,195-1,235 MBOED to 1,200-1,240 MBOED. The company has plans to acquire stake of Anadarko Petroleum Corporation (APC - Free Report) in the Alpine pipeline. Once the deal is concluded, ConocoPhillips will be able to generate more cashflows from incremental production.
Estimate Movement & Surprise Trend
In the last 30 days, the Zacks Consensus Estimate for Occidental Petroleum’s earnings for 2018 and 2019 has moved up 26.5% and 36.4%, respectively.
In the last 30 days, the Zacks Consensus Estimate for ConocoPhillips’s earnings for 2018 and 2019 has moved up 5.7% and 17.1%, respectively.
Occidental Petroleum surpassed the Zacks Consensus Estimate in each of the four trailing quarters with an average surprise of 30.18%. ConocoPhillips topped the consensus estimate in three of the four trailing quarters with an average surprise of 226.9%.
Occidental Petroleum currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. It has a market capitalization of around $63.10 billion.
ConocoPhillips has a Zacks Rank #3 (Hold). It has a market capitalization of $76.6 billion.
Shares of Occidental Petroleum and ConocoPhillips have gained 6.8% and 0.0%, respectively, against the industry’s decline of 2.0% in a month. Post earnings, the price movement of Occidental Petroleum has showed some improvement whereas the ConocoPhillips’s performance was flat over the same period.
How the Oil & Gas Industry is Shaping Up
After the price collapse in 2015, the Oil & Gas industry has seen substantial rise in oil prices in the recent months, which has led to increased oil production in United States, enabling the country to challenge the dominance of Middle-East oil producing countries.
U.S. Energy Information Administration projects that U.S. crude oil production will average 10.7 million barrels per day (b/d) in 2018, up from 9.4 million b/d in 2017, and will average 11.9 million b/d in 2019, 0.4 million b/d higher than forecast in the April.
Also, the United States is becoming a major exporter of natural gas, thanks to the shale revolution.
The Oil & Energy Sector is expected to register earnings growth of 124.9% in second-quarter 2018 on the back of revenue growth of 19%. (For more details read our weekly Zacks Earnings Trends)
Both Occidental Petroleum and ConocoPhillips surpassed first-quarter earnings expectations but the former has a better earnings surprise trend in the last four quarters.
The companies saw upward estimates for 2018 and 2019 in the last 30 days. However, the magnitude of estimate revisions for Occidental Petroleum was better than ConocoPhillips.
Given its better rank and magnitude of estimate revisions post earnings, our verdict is tilted toward Occidental Petroleum.
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