3 Energy Stocks Likely to Fuel Returns - Earnings ESP

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3 Energy Stocks Likely to Fuel Returns

Volatility is a fundamental characteristic of the energy sector. The vulnerability of the underlying commodities - oil and natural gas - to the broader economy is evident from price fluctuations that are inevitable when key issues hit the market.

For the January-March period, crude oil swung between lows of $91.25 per barrel to highs of $105.22, staying above the $100 per barrel mark for quite some time. Even natural gas prices picked up to over $6 per million Btu after remaining muted at around the $4 mark.  

Several issues had a role to play in these price swings. The year started with a frigid winter that persisted longer than usual, boosting the demand for energy for heating purposes. Also, an improvement in the overall U.S. economy supported this demand rise. Further, the Ukraine-Russia tension escalated oil prices to new highs, which were again somewhat capped by the anticipated slowdown of the Chinese economy.

While most of these may seem bad news upfront, some of the energy companies had a gala time, making a quick buck. Perked up demand for oil & natural gas, and higher per unit realization proved favorable.

With the first-quarter results underway, we remain optimistic about some earnings surprises in the energy space.

Making the Right Pick

The huge number of industry participants makes it difficult to shortlist stocks that have the potential to beat earnings. To make things easy, we looked for the combination of a favorable Zacks Rank - 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 posting a positive surprise in the upcoming announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with this combination, a positive earnings surprise happens nearly 70% of the time . Applying this strategy, we have found the following three stocks that are likely to stand out this earnings season.

Unit Corporation ( UNT ) is a Zacks Rank #1 stock with an Earnings ESP of +2.70%. The Zacks Consensus Estimate for the first quarter currently stands at $1.11 per share, representing robust growth over the year-ago quarter. The company beat estimates in three out of the past four quarters and has an average positive surprise of 6.67%. Also, the stock has gained nearly 29% since the start of the year.

Based in Tulsa, OK, Unit Corporation is an oil & gas drilling and exploration company with operations primarily in the U.S. The company works through three segments - Oil and Natural Gas, Contract Drilling and Mid-Stream.

-Unit Corporation is set to report first-quarter 2014 results on May 8.

Headquartered in Fort Worth, TX, Athlon Energy Inc. ( ATHL ) is another Zacks Rank #1 stock with an Earnings ESP of +3.70%. The Zacks Consensus Estimate for the first quarter currently stands at 27 cents per share. In the past two months, the majority of brokerage firms pumped up the estimates, an indication of a beat in the upcoming earnings. Also, Athlon stock has increased nearly 35% since Jan 2014.

This independent exploration and production company is focused on the acquisition and development of unconventional oil and natural gas properties in the Permian Basin.

- Athlon Energy is slated to release first-quarter 2014 results on May 6.

Another stock to look out for this earnings season is Canadian Natural Resources Limited ( CNQ ), carrying a Zacks Rank #2. The company has an Earnings ESP of +8.22%. The Zacks Consensus Estimate for the first quarter is currently pegged at 73 cents per share, substantially higher than the year-ago quarter level. The Canadian Natural stock has gained nearly 40% year to date.

Canadian Natural is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. It is one of the largest independent exploration and production companies in Canada, with extensive heavy crude oil and natural gas developments.

- Canadian Natural is expected to report first-quarter 2014 results on May 8.

Bottom Line

Despite its volatile nature, the energy sector is experiencing a slow-but-steady growth on the back of ever-increasing energy demand. According to the Energy Information Administration (EIA), which provides official energy statistics from the U.S. Government, global oil demand will grow another 1.2 million barrels per day in 2014. So betting on good energy stocks should not disappoint in the long run. Moreover, an earnings beat should immediately translate into price appreciation for these stocks.


ATHLON ENERGY (ATHL): Free Stock Analysis Report

CDN NTRL RSRCS (CNQ): Free Stock Analysis Report

UNIT CORP (UNT): Free Stock Analysis Report

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Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Earnings

Referenced Stocks: EIA , ATHL , CNQ , UNT

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