We are in the thick of the second-quarter earnings season and the picture so far is quite a healthy one. Per the Earnings Outlook, 327 S&P 500 members have reported their quarterly numbers. These companies collectively account for 77.2% of the index’s total market capitalization.
Well, 80.1% of these companies have delivered positive earnings surprises, while 73.4% beat top-line expectations. Earnings of these companies have increased 24.1% from the year-ago tally, while revenues have risen 10%. For the quarter under review, earnings of the S&P 500 companies as a whole are projected to improve 23.7% year over year on revenue growth of 8.9%.
Shining Prospects of Energy sector
Per the recent Earnings Outlook report dated Aug 1, 61.3% of the energy sector components (accounting for 78% of the market cap) have already reported their quarterly numbers. Total earnings surged 94.5% on 20.6% higher revenues. Most importantly, 52.6% of the energy companies surpassed earnings estimates while 73.7% of the firms beat revenue expectations.
Looking back at the Q1 earnings season, the sector’s earnings surged 79.6% from the same period last year — which is by far the highest growth among all sectors — on 14.5% higher revenues.
In Q2 again, the energy sector is poised to record the highest growth among all sectors. In fact, this is the only sector among all the 16 Zacks sectors, which is expected to witness triple-digit earnings growth. Per our expectations, the sector’s earnings are expected to jump 122.8% from second-quarter 2017, while the top line is likely to improve 22.2% from the year-ago levels.
Crude Rally: The Needle Mover
The oil benchmark in the United States attained its highest settlement since November 2014 in the second quarter, despite record high domestic production. Average West Texas Intermediate (WTI) crude prices for the month of April, May and June 2018 were recorded at $66.25, $69.98 and $67.87 per barrel, respectively, per data from the U.S. Energy Information Administration (EIA). These average prices were considerably higher than the year-ago respective prices of $51.06, $48.48 and $45.18.
Crude was supported by a variety of catalysts, including a series of buoyant weekly EIA crude inventory numbers, worries about tightening global supplies in the midst of strong demand and doubts regarding OPEC’s ability to boost production. Needless to say, such favorable developments have buoyed investors’ optimism surrounding the sector’s second-quarter results.
Key Releases on Aug 3
Given this bullish backdrop, investors interested in the energy stocks can watch out for the below-mentioned three companies that are scheduled to report second-quarter 2018 numbers on Aug 3.
Noble Energy, Inc. (NBL - Free Report) : Headquartered in Houston, Noble Energy is an independent energy company engaged in the exploration and production of crude oil, natural gas and natural gas liquids across the world. This upstream player is slated to release quarterly results before the opening bell.
According to our quantitative model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase its odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Note that we caution against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
In the last reported quarter, Noble Energy pulled off a positive earnings surprise of 25% on greater volumes, higher realized crude prices and operational efficiency. Coming to its earnings surprise history, the company had an impressive run on the bourses. It managed to surpass estimates in each of the trailing four quarters, with an average positive earnings surprise of 237.02%.
According to our proven model, Noble Energy’s earnings streak is expected to come to a halt in the to-be-reported quarter, because the company has an Earnings ESP of 0.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Noble Energy expects second-quarter total sales volume in the range of 340-350 thousand barrels of oil equivalent per day (MBoe/d). Notably, this compares unfavorably with the quarterly sales volume of 408 Mboe/d in the second quarter of 2017. This might be due to the impact of the closure of business interest in Tamar and the Gulf of Mexico. However, the lower volumes might be offset by the northward movement in oil prices, which may aid the overall results.
Noble Midstream Partners LP (NBLX - Free Report) : Headquartered in Houston, Noble Midstream Partners is a master limited partnership created by Noble Energy to own, develop and acquire midstream infrastructural assets. The company is slated to post its results before the opening bell.
In the last reported quarter, the partnership delivered a negative earnings surprise of 11.01% on high operating expenses. Notably, the company displays a mixed earnings surprise history, missing estimates in two out of the trailing four quarters, delivering an average earnings surprise of +7.08%.
The company expects its oil and gas gathering volumes in the range of 190-210 Mboe/d, way higher than the year-ago figure of 74 Mboe/d. Recently, the company also announced a hike in its cash distribution by 20% and 4.7% on a yearly and sequential basis, respectively. This has raised optimism surrounding the stock.
Enbridge Inc (ENB - Free Report) : Headquartered in Calgary, Alberta, Enbridge is a leading energy infrastructure company. This midstream company is set to unveil quarterly results before the closing bell.
In the last reported quarter, the company delivered a positive earnings surprise of 70.83% on higher liquid delivery volumes from the Canadian Mainline and Lakehead System. Enbridge also has an impressive earnings history, surpassing estimates in each of the last three quarters. However, this time around, things are a little unfavorable for the company as it carries an Earnings ESP of -4.48% and a Zacks Rank #3. Though a Zacks Rank #3 bodes well, a negative ESP dims its prospects.
The Zacks Consensus Estimate for earnings stands at 42 cents on revenues of $9,857 million. Both earnings and sales estimates signal year-over-year improvement of 40% and 19.2%, respectively. Nonetheless, the earnings estimate compares unfavorably with the last reported quarter’s EPS of 82 cents.
We believe that Enbridge’s merger with Spectra Energy has diversified and upgraded its portfolio, making it the largest infrastructure firm in North America. Moreover, the company’s huge backlog of growth projects that stands at roughly C$22 billion along with C$12 billion worth midstream projects that have come online will help it drive its performance in the quarter. However, the company still struggles with a huge debt burden that rose 3.1% in the last reported quarter. We also remain concerned about the increasing gas distribution costs, which may limit its overall results. Expenses related to distributing natural gas rose 30.5% in the first quarter, leading to a 21.1% increase in the operating cost of Enbridge.
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