With more than 50% of the companies in the S&P 500 index having reported results, the Q2 earnings season has come halfway.
The earnings snapshot looks overwhelming as the 265 S&P 500 members, who have released results as of Jul 27, 2018, witnessed year-over-year collective earnings growth of 23.6%. Notably, 80.8% of the players have beat the Zacks Consensus Estimate so far.
We expect the Energy sector to contribute the maximum to the index’s earnings growth. In other words, among all the Zacks sectors, Energy will likely witness the highest growth in earnings from the year-ago quarter. Our study here will point to those energy stocks that have a high probability of beating estimates.
Impressive Q2 Oil Price
For the month of April, May and June of 2018, the average West Texas Intermediate (WTI) crude prices was reported at a respective $66.25 per barrel, $69.98 and $67.87 — significantly higher than the year-ago monthly prices of $51.06, $48.48 and $45.18. Price data has been taken from the U.S. Energy Information Administration (EIA).
Since the past three years, the average monthly crude pricing scenario through second-quarter 2018 was the healthiest, thanks to supply concerns emanating from Venezuela and Iran amid robust domestic economy.
Natural gashas also fared well as the price of the commodity rose almost 8% through the April-to-June quarter of 2018.
Energy’s Triple-Digit Earnings Growth
Among all the Zacks sectors, Energy will likely be the only one to witness triple digit year-over-year earnings growth in Q2. We expect Energy to report 123.1% earnings growth through the second quarter of 2018, higher than 79.6% growth in the prior quarter. The record average monthly oil prices primarily backed Energy.
Importantly, excluding Energy, the S&P 500’s earnings growth in Q2 will likely drop to 20.7% from 23.6%.
The fate of all the energy players is tied to fluctuations in oil prices. The massive recovery in price of the commodity acted in favor of energy explorers and producers as the Energy sector is expected to generate $19.4 billion, more than double of $8.1 billion in the year-ago quarter.
Choosing stocks with earnings beat potential might be a difficult task unless one knows the way to shortlist. One way to do this is to pick stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their upcoming earnings announcements. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Headquartered in Houston, TX, Marathon Oil Corporation (MRO - Free Report) is a leading oil and gas explorer with a strong foothold in the domestic shale plays.
The company has an Earnings ESP of +1.40% and a Zacks Rank #3. The Zacks Consensus Estimate for the to-be-reported earnings is pegged at 21 cents.
Marathon is set to report second-quarter results on Aug 1, after the closing bell.
Murphy Oil Corporation(MUR - Free Report) , headquartered in El Dorado, AR, is also a oil and gas explorer with presence in onshore plays in North America and off the coast of Gulf of Mexico, Canada and Southeast Asia.
The company’s second-quarter prospects are bright as it has an Earnings ESP of +5.99% and a Zacks Rank #2. The Zacks Consensus Estimate for earnings is 33 cents.
The company is set to report results on Aug 8, after the closing bell.
Occidental Petroleum Corporation(OXY - Free Report) , headquartered in Houston, TX, is engaged in exploration and production of oil and natural gas with operations extended across Latin America, the United States and Middle East.
For the upcoming release, Occidental has an Earnings ESP of +1.75% and a Zacks Rank #2.
Occidental — which has a Zacks Consensus Estimate of $1.24 for second-quarter earnings — will release results on Aug 8, after the bell.
Headquartered in Irving, TX, Pioneer Natural Resources Company (PXD - Free Report) is an upstream energy player with foothold in the domestic plays.
The company, with a Zacks Rank #3 and an Earnings ESP of +0.27%, has a Zacks Consensus Estimate for earnings of $1.63. Pioneer is set to report second-quarter results on Aug 7.
Northern Oil and Gas, Inc.(NOG - Free Report) , based in Minnetonka, MN, is engaged in exploration and production with a strong presence in the Bakken and Three Forks formations.
The company — with a Zacks Consensus Estimate for earnings of 7 cents — currently carries a Zacks Rank #1 and an Earnings ESP of +2.44%. Northern Oil is expected to report earnings on Aug 14.
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