Unless you have been home in bed for the last two weeks, you
have probably noticed that gas prices are rising. Yesterday
when I filled up, it was $3.65 a gallon, just a few weeks ago,
prices were below $3.30. The cause is of course rising oil
prices. This morning WTI crude was going for $108.53, while a
month ago prices were just $99.47. At the start of the fourth
quarter, oil prices were hovering in the high $70's. The
international price of oil, as measured by Brent crude is much
higher, and has been for a while now.
The oil companies did better than average in the fourth quarter,
with total net income for the Energy stocks in the S&P 500
rising by 9.61% while with almost all the results in, the S&P
500 has so far seen the total net income rise by 7.14%. On
the top line, Energy topped the charts, with a 13.43% year over
year rise, almost twice the 6.83% rise in revenue posted by the
S&P 500 as a whole.
However, that is not expected to last. In the first
quarter the energy companies are actually expected to see their
total net income fall by 3.79% (year over year), which is weaker
than the 2.58% drop that is expected for the s& 500
overall. On the revenue side, growth is expected to drop to
5.05% for the energy stocks, and 6.83% for the S&P 500
For all of 2012, the analysts are even more pessimistic for the
Energy firms relative to the overall market, with earnings growth
of just 0.73% while the S&P overall is expected to see growth
of 9.41%. As far as revenue is concerned, for the full year,
energy company revenues are expected to fall 1.18% for the full
year, while the S&P 500 is expected to rise by 2.51% in
One might think that with oil prices rising, that we would be
seeing a surge of upward earnings estimates for the oil companies,
but so far that is not the case. In fact, the ratio of upward
to downward revisions for 2012 earnings is 0.54, or almost two
estimate cuts for every increase.
So, do you think the analysts implicitly suggesting that oil
prices are going to fall back down, or do you think that the
analysts are way off base, and that the estimates will soon turn
around and start to rise.
Personally I think the later is the case. If I'm right,
the energy companies, which have among the lowest P/Es of any
sector (Autos and Financials are very close) will turn out to be
wonderful places to be this year.
To read this article on Zacks.com click here.