Energy Stocks’ Q2 Earnings Due on Jul 31: APC, DVN & More

We are in the thick of the second-quarter earnings season, with around 139 S&P 500 companies expected to come up with quarterly results by the end of this week.

Picture So Far

The Q2 earnings season is past the halfway mark, with 265 S&P 500 members (collectively accounting for 66.2% of the index’s total market capitalization) having already reported their quarterly numbers. Per the latest Earnings Preview, total earnings for these companies are up 23.6% from the same period last year on 10.1% higher revenues, with 80.8% delivering positive earnings surprises and 72.1% beating revenue estimates. Results from more than 80% of the large-cap index’s total membership will be out by the end of this week.

Combining the actual numbers reported by the 265 members and estimates of the pending 235 companies, total earnings are expected to be up 23.6% from the same period last year on 8.8% higher revenues. Moreover, 12 of the 16 Zacks sectors are expected to register double-digit earnings growth. This would follow 24.6% earnings growth in 2018 Q1 on 8.6%, the highest growth in almost 7 years. Notably, the earnings growth pace is a tad bit below the prior-quarter’s level, but revenue growth pace is clearly tracking higher.

Meanwhile, more than half of the S&P listed energy companies have released their second-quarter results. To be specific, 17 out of the 31 S&P 500 energy stocks have reported their numbers.

Q2 Oil and Gas Price Report Card

Oil: 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. It goes without saying that all oil-producing companies are thus poised to benefit from recovering commodity prices, as they will be able to extract more value for their products.

Natural gas: Natural gas prices at the end of the second quarter were $2.92 MMBtu compared with $3.03/MMBtu in the year-ago quarter, reflecting a decline of around 3.7%. Weakness in natural gas prices is likely to have an adverse effect on the gas producing companies.

Year-over-Year Gain Leads to Bullish Expectations

Looking back at the Q1 earnings season, the sector’s earnings surged 79.6% — the highest growth among all sectors — from the same period last year on 14.5% higher revenues.

In Q2 again, the energy sector is poised to record the highest growth among all sectors. Per our expectations, the sector’s earnings are expected to more than double and jump 123.1% from second-quarter 2017, while the top line is likely to improve 22.7% from the year-ago levels.

Stocks to Watch Out for Earnings on Jul 31

Given this bullish backdrop, investors interested in the energy space can watch out for four companies that are scheduled to report their quarterly numbers on Jul 31. Let’s delve deeper into how things are shaping up for these below-mentioned companies.

Woodlands, TX-based Anadarko Petroleum Corporation APC is primarily engaged in the exploration, production, gathering, processing and marketing of natural gas, crude oil, condensate and natural gas liquids (NGLs). The company is slated to report quarterly results after the closing 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, Anadarko Petroleum delivered a positive earnings surprise of 20.93% on the back of increased costs and operational efficiency. Coming to its earnings surprise history, the company surpassed estimates in two out of the trailing four quarters.

Notably, our proven model does not conclusively show that Anadarko Petroleum will be able to beat estimates in the to-be-reported quarter, as it carries an Earnings ESP of -1.31% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

While the company is likely to benefit from crude pricing strength and higher oil volumes, lower natural gas production and weak gas prices may limit overall results. The Zacks Consensus Estimate for revenues from oil sales is pegged at $2,100 million compared with $1,422 million recorded in the prior-year quarter. The improved results are anticipated on the back of higher volumes and soaring realized prices. However, revenues from gas sales are expected to decline more than 35% to $206 million in the to-be-reported quarter. Further, The Zacks Consensus Estimate for revenues from gathering, processing and marketing is pegged at $358 million, lower than the year-ago quarter figure of $464 million.

Next in line we have Oklahoma-based independent energy producer Devon Energy Corporation DVN, which is slated to release quarterly numbers after the closing bell.

In the last reported quarter, the company delivered a positive earnings surprise of 5.26%. Notably, Devon Energy topped earnings estimates in three out of the four trailing quarters. Per our proven model, the company is likely to beat earnings estimates this quarter as well, as it has a Zacks Rank #3 and an Earnings ESP of +2.20%.

Devon Energy Corporation Price and EPS Surprise

The solid results are likely to be driven by higher output levels and cost-cut initiatives. To be precise, Devon estimates total production from its assets for the second quarter of 2018 in the range of 524,000-549,000 barrels of oil equivalent (Boe) per day, while the Zacks Consensus Estimate for second-quarter total production is pegged at nearly 529,000 Boe a day. (Read More: Can Focus on Domestic Oil Support Devon's Q2 Earnings?).

Then we have Newfield Exploration Company NFX, an oil and gas producer with operations focused in the Gulf of Mexico, which is set to unveil results after the closing bell.

The company delivered a positive earnings surprise of 15.49% in the last reported quarter on improved price realizations and increased production levels. Further, it surpassed earnings estimates in three out of the trailing four quarters. Newfield is likely to beat earnings estimates in the to-be-reported quarter as well, on oil volumes and pricing gains.

Average crude oil and condensate sales price is expected at $60 a barrel, showing a rise from $58 per barrel in the first quarter and $43.42 per barrel in the prior-year quarter. Production of crude oil per day for the second quarter is expected at 7.24MMBbls, depicting a rise from the last reported quarter’s 6.71 MMBbls and the year-ago quarter’s 5.96 MMBbls. (Read More: Is a Beat in Store for Newfield This Earnings Season?)

Lastly, we have Whiting Petroleum Corporation WLL, an independent energy company engaged in the exploration, development and production of crude oil and natural gas properties in the United States. This Denver-based company is set to unveil quarterly results after the market closes.

In the preceding three-month period, the domestic oil and gas explorer beat the consensus mark by a massive 318.2% on robust output, and prices. As far as earnings surprises are concerned, the Denver, CO-based upstream operator is on a firm footing, having surpassed the Zacks Consensus Estimate in each of the last four quarters. However, the company’s earnings streak may come to a halt this time around, as it does not carry the right combination of the two key ingredients. While Whiting Petroleum carries a Zacks Rank #3, its negative EPS of -1.48% makes surprise prediction difficult.

While Whiting Petroleum is expected to benefit from high production and improved crude realizations, weakness in natural gas may dent the overall earnings picture. The Zacks Consensus Estimate for quarterly output is pegged at 11.35 million barrels of oil equivalent (MMBOE), slightly above the midpoint of the company’s guided range and ahead of 10.25 MMBOE reported in the year-ago quarter. Further, the Zacks Consensus Estimate for average realized oil price is projected to rise 50% from the year-ago quarter to $61 per barrel. However, the Zacks Consensus Estimate for gas price realization stands at $1.10 per Mcf compared with $1.68 in the second quarter of 2017.

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