3 Oil Stocks to Explore as Q4 Wraps Up - Earnings ESP

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3 Oil Stocks to Explore as Q4 Wraps Up

The prospects of the oil industry, the Exploration and Production (E&P) sector in particular, are largely tied to the related commodities. The oil/natural gas-focused stocks thus stands to benefit from the recent momentum in crude oil and natural gas prices.

During the last few months, crude prices have mostly traded in the $95-$105 per barrel range on a positive demand outlook for heating oil amid below-normal temperatures that prevailed most of winter. Further support came from Janet Yellen's reassuring Fed commentary and strong January trade data from China.

Meanwhile, natural gas has also been on a tear. After hovering near the 3.5 per million Btu level for most of 2013, the prices have now spiked to around $6. The single most important contributor to this upward pressure was the powerful winter snowstorm in the U.S. and Canada that called for higher consumption of heating fuels.

Additionally, with rapid development and urbanization of emerging nations, energy demand is on the rise. The U.S. Energy Information Administration (EIA) foresees growth in global liquids consumption. Natural gas demand also shows a similar trend, spurred by its cost effectiveness and abundant supply in North America. The oil and natural gas producers are most suited to benefit from this opportunity.

With over 75% of oil sector companies having already reported, we lie in the last leg of the Q4 earnings releases. For those investors who have missed out on investment opportunities offered by the sector so far this earnings season, here are some options that can still be explored. 

Picking the Right Stocks

With the wide array of companies in the sector muddling up the stock picking power, the Zacks methodology could offer some relief. One could narrow down the list using the positive Zacks Earnings ESP as a guide, along with a favorable Zacks Rank - Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their next earnings 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, the chance of a positive earnings surprise is as high as 70%.

Here are three E&P stocks that are poised to beat estimates according to our methodology:

EPL Oil & Gas, Inc . ( EPL ) has an earnings ESP of +15.15% and a Zacks Rank #3. The Zacks Consensus Estimate is pegged at 33 cents per share. 2013 marked a good year for EPL with stocks gaining over 18%.

Last month, the company made a $70.4 million acquisition, gaining properties in the shallow-water central Gulf of Mexico. These oil producing assets will add value to the company's existing portfolio. Additionally, the company announced growth in its oil assets, which could prove lucrative keeping in mind the oil price movement.

The Houston, Texas-based company is slated to release its fourth quarter results on Feb 27.

Gulfport Energy Corp . ( GPOR ) delivered positive earnings surprises in the trailing two quarters and the future looks bright with an earnings ESP of +11.11% and a Zacks Rank #3. The Zacks Consensus Estimate for the fourth quarter is 18 cents per share.

The stock has gained over 75% in the past one-year time frame. Moreover, last month, the company gave a stellar 2013 production update, stating 340% year-over-year growth. The company holds properties in the lucrative Bakken and Utica plays in addition to the Niobrara Formation.

The Oklahoma-headquartered company is set to report its fourth quarter results on Feb 26. 

Southwestern Energy Co. ( SWN ) had a superb 2013 having surpassed the Zacks Consensus Estimate in three out of four quarters. For the upcoming release, Southwestern has an earnings ESP of +1.92% and a Zacks Rank #3.

The stock has also soared over 30% in the last one-year time frame. Southwestern is engaged in the development and production of oil and natural gas, mostly in the U.S. 

The Houston, Texas-based company will release its fourth quarter results on Feb 27.

Bottom Line

Despite the volatile nature of the underlying commodities, the oil and gas sector is slowly but steadily growing on the back of ever-increasing energy demand. Moreover, with technological advancement, the E&P companies are able to generate higher production with lower costs, bringing in the much needed efficiency and profits. 


EPL OIL&GAS INC (EPL): Free Stock Analysis Report

GULFPORT ENGY (GPOR): Free Stock Analysis Report

SOUTHWESTRN ENE (SWN): 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 , EPL , GPOR , SWN

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