We are in the busiest phase of the Q3 earnings season, with 130 S&P 500 members set to release their quarterly results this week.
Picture Emerging Thus Far
So far, 332 S&P 500 members – 74.1% of the index’s total market capitalization – have come up with their Q3 numbers. Total earnings for these companies have inched up 1.9% from the last-year quarter on 1.3% higher revenues. Our Earnings Trends report dated Nov 1, 2016, indicates that 72.9% of these companies delivered positive earnings surprises, while 55.4% beat revenue estimates.
Will the Energy Sector Remain a Drag on Earnings?
The ‘Oils/Energy’ sector remains weak and continues to be a drag on overall growth. For the 61.1% sector components on the S&P 500 Index that have reported Q3 results – including behemoths like Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) – total earnings plunged 63.1% due to a 13.7% decline in revenues, on a year-over-year basis.
Despite being the most underperforming sector, an overwhelming 72.7% Oils/Energy companies managed to deliver an earnings beat, albeit due to very low estimates.
Oil & Natural Gas Pricing Scenario in Q3
The pricing scenario for natural gas was much better in the third quarter, both on a sequential and an annualized basis. However, oil prices were weaker than the July-September quarter of 2015. Despite the persistent weakness in crude, the commodity price improved significantly from the mid-February lows. The improvement in commodity prices is undoubtedly favorable for upstream energy players as these firms would now be able to carry on exploration and production activities by hiring more drillers.
This is evidenced by the substantial increase in the U.S. rig count in recent times. In fact, Baker Hughes Inc. (BHI) – the company’s data issued since 1944 is as an important yardstick for energy service providers in gauging the overall business environment of the oil and gas industry – declared the rig count for Sep 2016. In the U.S., the total number of rigs increased from the Aug 2016 count owing to a rise in the number of land rigs. This represents the fourth consecutive increase in the U.S. monthly rig count.
Developments in this front should be favorable for upstream energy players in terms of improved production and prices.
Stocks to Watch for Earnings on Nov 3
Let’s see what’s in store for five oil companies that are expected to come up with Q3 numbers on Nov 3.
Houston, TX-based EOG Resources Inc. EOG, a major independent oil and gas exploration and production (“E&P”) company, is expected to report Q3 results after the closing bell. The company delivered an average positive earnings surprise of 37.98% over the last four quarters.
Our proven model shows that EOG Resources is likely to beat earnings because it has the right combination of two key ingredients. This is because the stock has Earnings ESP of +3.23% and a Zacks Rank #3 (Hold). It is to be noted that for an earnings beat a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3.
U.S.energy firm Apache Corp. APA is set to release Q3 results before the opening bell.
Last quarter, the company posted a negative earnings surprise of 8.33%. Apache reported an average positive surprise of 55.75% in the preceding four quarters. Our proven model does not conclusively show that Apache will beat estimates this quarter. This is because the company has a Zacks Rank #3 but an Earnings ESP of 0.00%. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Oil and gas explorer Encana Corporation ECA is set to report Q3 results, before the market opens. Last quarter, the company delivered a positive earnings surprise of 225.00%. Coming to its earnings surprise history, Encana reported an average positive earnings surprise of 71.21% for the last four quarters.
Our proven model does not conclusively show that Encana will beat estimates this quarter. This is because the company has a Zacks Rank #2 but an Earnings ESP of 0.00%. (Read more: Encana: What's in the Cards this Earnings Season?)
Cheniere Energy Inc. LNG is expected to report third-quarter 2016 results before the opening bell. The company lagged the Zacks Consensus Estimate in each of the last four quarters with an average miss of 61.28%.
Our proven model does not conclusively show that Cheniere Energy will beat estimates this quarter. This is because the company has an Earnings ESP of +19.23% but a Zacks Rank #4. Please note that the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
CHENIERE ENERGY Price and EPS Surprise
CHENIERE ENERGY Price and EPS Surprise | CHENIERE ENERGY Quote
Energen Corp. EGN is expected to report third-quarter 2016 results after the closing bell. Over the last four quarters the company posted an average positive earnings surprise of 3.18%.
Our proven model does not conclusively show that Energen will beat estimates this quarter. This is because the company’s Earnings ESP of -4.00% complicates surprise prediction in spite of its favorable Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
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