Energy ETFs Look Weak Ahead of Key Q2 Earnings Releases

After hitting a bear territory in early June, oil price strongly rebounded and has been showing immense strength on tight supply conditions driven by Iran and Venezuela sanctions, Middle East tensions, extended OPEC cut deal and declining OPEC production that instilled confidence in the sector. Given the oil price volatility over the past three months, energy stocks have remained under pressure (read: Is an Oil ETF Rally on Middle East Tensions Sustainable?).

As a result, the ultra-popular ETFs Energy Select Sector SPDR XLE, Vanguard Energy ETF VDE, iShares U.S. Energy ETF IYE and Fidelity MSCI Energy Index ETF FENY declined 5.2%, 7.5%, 6.7% and 7.6%, respectively over the past month.

The downside can be attributed to weak Q2 earnings expectations. This is especially true as total earnings for the sector are expected to be down 4.5% from the same period last year on 2.3% higher revenues.

Let’s delve into the earnings picture of two oil biggies, Exxon Mobil (XOM) and Chevron (CVX), which dominate the abovementioned funds’ portfolio and have the power to move the funds up or down in the coming days. Both firms are slated to release their earnings before the market opens on Aug 2, and collectively make up for 42.9% of XLE, 42.1% of IYE, 40.5% of FENY and 40% of VDE (see: all the Energy ETFs here).

According to our surprise prediction methodology, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP is likely to come up with an earnings beat. A Zacks Rank #4 or 5 (Sell rated) stock is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

What’s in the Cards?

Exxon Mobil has a Zacks Rank #5 and an Earnings ESP of -9.87%. The company witnessed  negative earnings estimate revision of 21 cents over the past 30 days for the to-be-reported quarter. Its earnings are expected to decline an impressive 17.4% from the year-ago quarter. However, it delivered positive earnings surprise of 2.47% on average over the last four quarters. The stock has a VGM Score of C.

Chevron has a Zacks Rank #3 and an Earnings ESP of -3.21%  The company is expected to see modest earnings growth of 1.1% year over year for the to-be-reported quarter. It delivered average positive earnings surprise of 2.33% in the last four quarters. However, the company has witnessed downward earnings estimate revision of 23 cents over the past 30 days. The stock has a VGM Score of B (read: Sector ETFs & Stocks to Bet On This Earnings Season).


The duo saw a earnings estimate revisions. Analysts decreasing estimates right before earnings — with the most up-to-date information possible — is a bad indicator. Additionally, XLE has a Zacks ETF Rank #4, suggesting some pain for the ETF in the coming weeks. However, the other three ETFs have a Zacks ETF Rank #3, suggesting some room for upside in the near term as these funds have the ability to withstand the shocks from any of the major components in their holdings.

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iShares U.S. Energy ETF (IYE): ETF Research Reports

Vanguard Energy ETF (VDE): ETF Research Reports

Fidelity MSCI Energy Index ETF (FENY): ETF Research Reports

Energy Select Sector SPDR Fund (XLE): ETF Research Reports

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

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