We are now in the middle of the January-March quarter earnings season that witnessed the lowest oil price in the last 12 years. As per our latest Zacks Earnings Trend report, almost 44.7% of the total companies in the Oil/Energy sector that are included in the S&P 500 index have already reported their earnings. Of the firms that have reported, 52.9% have surpassed our earnings estimates.
As per the report, the first quarter was gloomy for the oil/energy sector, with earnings projected to decline 111.8% year over year. Most importantly, the magnitude of earnings decline over the last two quarters might increase significantly. This anticipated downturn is likely to drag down the market (S&P 500 index in general) with a year-over-year decline of 7.3% in the first quarter.
Investors should know that excluding the impact of the energy sector, the markets will likely fall 1.8%. Including the impact of crude, the market is predicted to go further south by 7.3%. Hence, the energy sector can easily be seen as a major dampener in the overall Q1 earnings picture. In fact, we have seen that weak crude has already impacted the oil exploration companies that have reported earnings so far.
Outlook for Oil Exploration Player's Earnings
The overall movement of oil prices in the first quarter is essential to any discussion on the performance of the upstream players. Crude mostly traded below $40 per barrel. Notably, the West Texas Intermediate (WTI) crude fell to the 12-year low mark in mid February.
Oversupply of the commodity is the main reason for the pricing weakness. In details, the supply glut was primarily a result of new crude output from the Organization of the Petroleum Exporting Countries (OPEC) members - especially the return of Iranian crude to the market after the U.S. removed sanctions against the country - in the already over supplied commodity market.
Definitely the scenario was unfavorable for the oil exploration players. This is because crude has a positive correlation with the operations of these companies.
Given the persistent weakness in commodity prices, investors are eager to find out how oil stocks will fare. Let's take a look at the expected earnings performance of three major energy companies that are scheduled to post first-quarter earnings tomorrow.
Apache Corp. APA has an Earnings ESP of 0.00% and Zacks Rank #3 (Hold). Though a favorable Zacks Rank increases the predictive power of ESP, the company's ESP of 0.00% makes surprise prediction difficult.
Last quarter, the company delivered a positive earnings surprise of 88.46%. In the trailing four quarter, Apache delivered an average positive surprise of 96.09%. We'll have to wait and see whether the company can keep its surprise streak alive. (Read more: Apache: Apache: What's in the Cards this Earnings Season? )
Chesapeake Energy Corporation CHK has an Earnings ESP of +9.09% and Zacks Rank #3. Our proven model shows that Chesapeake Energy is likely to beat on earnings because it has the right combination of the two key ingredients.
In the preceding three-month period, the company reported a positive earnings surprise of 5.88%. Moreover, Chesapeake beat estimates in each of the last four quarters. (Read more: Chesapeake: What's in Store This Earnings Season? )
EOG Resources Inc. EOG has an Earnings ESP is 0.00% and a Zacks Rank #3. Although, a favorable rank increases the predictive power of ESP, a 0.00% ESP complicates our surprise prediction.
In the preceding three-month period, the energy company delivered an 18.18% positive earnings surprise. Moreover, the company delivered an average beat of 196.21% for the trailing four quarters amid weak oil prices. (Read more: EOG Resources: What's Likely This Earnings Season? )
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