Picture Thus Far
The Q3 earnings cycle is in full swing with 138 S&P 500 members that account for 32.9% of the index's total market capitalization having reported their numbers. Per the latest Earnings Trends , total earnings for these companies are up 7.3% from the same period last year on 4.9% higher revenues, with 70.3% positive earnings surprises and 68.1% beating revenue estimates.
As of now, very few energy companies have reported their third-quarter results. Notably, just two energy companies on the S&P 500 index have reported their Q3 numbers. These include the major oilfield services players Schlumberger Limited SLB and Halliburton Company HAL . Schlumberger reported third-quarter 2017 earnings of 42 cents per share (excluding charges and credits), in line with the Zacks Consensus Estimate and higher than the year-ago figure of 25 cents.(Read more: Schlumberger Posts In-Line Q3 Earnings, Revenues Miss )
Halliburton Co. reported better-than-expected third-quarter earnings, thanks to improved utilization and pricing gains in North America. Halliburton's income from continuing operation came in at 42 cents per share, beating the Zacks Consensus Estimate of 38 cents. Notably this is the 13th consecutive earnings beat recorded by the company. Moreover, revenues of $5,444 million beat the Zacks Consensus Estimate of $5,318.9 million.(Read more North American Strength Drives Halliburton Q3 Earnings )
Q3 Report Card: Oil and Gas Prices End on a Positive Note
Oil: Prices of oil at the end of the third quarter improved amid continued decline in domestic inventories and an improving supply-demand narrative. With fundamentals pointing to a tighter market, price of oil at the end of the third quarter was $51.67 per barrel, up about 10.5% sequentially. A year ago, crude prices lingered around $45 per barrel.
Natural Gas: Prices of natural gas dropped about 3.5% in the July-September period owing to the fuel's tepid demand due to mild weather conditions and hurricane-related power outages. Despite the sequential fall, natural gas prices remain favorable when compared with the corresponding period of 2016. The commodity futures ended the quarter at $3 per MMBtu, up more than 3% from the Sep 30, 2016 settlement of $2.9 per MMBtu.
Energy Companies to Gain from Higher Prices: As we know, the profitability of energy companies is directly affected by fluctuations in oil and gas prices. Therefore, all oil/gas-related stocks are poised to benefit from recovering commodity prices as they will be able to extract more value for their products.
Year-over-Year Gain Leads to Bullish Expectations
A look back at the Q2 earnings season reflects that earnings for the sector recorded a massive 252.7% jump from the same period last year - by far the highest growth among all sectors - on 16.8% higher revenues.
The energy sector is poised to see the strongest growth in Q3 again. Per our expectations, earnings for the sector are expected to jump 122% from third-quarter 2016, while the top line is likely to witness an improvement of 16.3% from the year-ago levels.
Energy Stock Reporting Q3 Earnings on Oct 26
Let's see what's in store for four energy companies that are slated to release their quarterly numbers.
Texas-based leading refinery player Valero Energy CorporationVLO is slated to report results before the opening 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 surprise. 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.
Last quarter, the company delivered a positive earnings surprise of 13.89%, courtesy of higher throughput margin. Moreover, Valero surpassed the Zacks Consensus Estimate in the last four quarters, with an average of 18.24%.
Valero Energy Corporation Price and EPS Surprise
Valero is expected to keep its earnings streak alive this quarter also as it has the right combination of the two ingredients. The company has an Earnings ESP of +0.27% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .
The Zacks Consensus Estimate for the company's refining segment earnings is $1,372 million, higher than $990 million recorded in the year-ago quarter and $959 million in the prior quarter. Analysts polled by Zacks expect revenues of $20,183 million for the third quarter, up 2.7% from the year-ago quarter.
Our model predicted earnings beat earlier too. When we issued its Q3 earnings preview article , the company had an Earnings ESP of +0.27% and carried a Zacks Rank #2.
Marathon Petroleum CorporationMPC an independent oil refiner and marketer is set to release results before the market opens.
The Findlay, OH-based downstream operator has a mixed earnings surprise history. It surpassed the Zacks Consensus Estimate twice in the last four quarters. In the preceding three-month period, the company delivered a negative earnings surprise of 0.96% on lower gross margins and elevated costs.
Marathon Petroleum Corporation Price and EPS Surprise
However, our model indicates that Marathon Petroleum is likely to beat on earnings estimates this time, as it has a Zacks Rank #3 and an Earnings ESP of +0.09%.
The Zacks Consensus Estimate for the quarter's revenues from refining and marketing is pegged at $419 million, 36.9% higher than the reported figure in third-quarter 2016. We also expect profitability in its midstream (or pipeline transportation) segment to be 62.8% higher than the year-ago quarter to stand at $420 million. Earnings are likely to be driven by solid process and fractionation volumes, along with contribution from investments in new projects.
Our model predicted earnings beat earlier too. When we issued its Q3 earnings preview article , the company had an Earnings ESP of +0.14% and carried a Zacks Rank #3.
Energy equipment supplier National Oilwell Varco, Inc. NOV will report its results after the closing bell.
National Oilwell Varco has a good track record of earnings surprise history, courtesy of its cost-reduction initiatives and improved efficiencies. The company delivered average positive earnings surprise of 10.46% in the trailing four quarters.
National Oilwell Varco, Inc. Price and EPS Surprise
Based on our model, National Oilwell is likely to beat on earnings even this time, as it has a Zacks Rank #3 and an Earnings ESP of +13.04%.
Rising momentum in the U.S. markets and modest improvement in international markets along with increasing consumer demand are likely to improve the revenues of the company. The Zacks Consensus Estimate for revenues of the Wellbore Technology segment is $672 million compared with $614 million reported in second-quarter 2017 and $526 million recorded in the year-ago quarter.
Our model predicted earnings beat earlier too. When we issued its Q3 earnings preview article , the company had an earnings ESP of +10.91% and carried a Zacks Rank #3.
Upstream energy player EQT CorporationEQT is set to report results before the opening bell.
Last quarter, the company reported earnings of 6 cents per share surpassing the Zacks Consensus Estimate of 5 cents. EQT delivered average positive earnings surprise of 102.17% in the trailing four quarters.
EQT Corporation Price and EPS Surprise
However, our proven model does not show that EQT is likely to beat earnings this quarter. This is because the company has an Earnings ESP of -31.31% and a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, a negative Earnings ESP makes surprise prediction difficult.
Per the Zacks Consensus Estimate, the average daily sales volume for the current quarter is estimated at 2,303 million cubic feet equivalent per day (MMcfe/d), which is higher than 2,177 MMcfe/d recorded in the preceding quarter and 2,131 MMcfe/d in the year-ago quarter. The company is poised to benefit as the midstream business might rake more profits for EQT given the fact that U.S. drillers continue to bank on shale plays.
However, we are concerned by the increased spending of the company. EQT is expected to spend $1.5 billion in 2017. During first-half 2017, EQT's operating expenses related to transportation and processing activities surged more than 66%. If the trend continues, it might hurt EQT's earnings.
Even earlier, our model did not indicate that EQT will beat on earnings this season. When we issued its Q3 earnings preview article , the company had an Earnings ESP of -163.91% and carried a Zacks Rank #3.
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