What Lies In Store For Energy ETF This Earnings Season?

The energy sector enjoyed a strong surge last year, with oil price registering the highest yearly gain in three years. The positive trend continued at the start of 2020 due to Middle East tensions but has fizzled lately with the coronavirus scare leading to global slowdown fears (read: Virus Scare Weighs on Oil ETFs: Go Short for the Near Term).

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 are down around 9% each this month. The downside can also be attributed to weak Q4 earnings expectations. This is especially true as total earnings for the sector are expected to be down 47.1% from the same period last year. Revenues are expected to decline 3%.

Let’s delve into the earnings picture of two oil biggies, Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) , 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 market open on Jan 31, and collectively make up for 42.9% of XLE, 42.2% of IYE, 40.5% of FENY and 39.3% of VDE (see: all the Energy ETFs here).

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. 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 #3 (Hold) and an Earnings ESP of 0.00%. The company has witnessed negative earnings estimate revision of 3 cents over the past seven days for the to-be-reported quarter. The Zacks Consensus Estimate for the company’s earnings indicates a decline of 70.9% from the year-ago quarter reported figure. However, it delivered positive earnings surprise of 7.45% on average over the last four quarters. The stock has a VGM Score of B.

Chevron has a Zacks Rank #2 and an Earnings ESP of +0.80%. It has witnessed upward earnings estimate revision of 3 cents over the past seven days for the to-be-reported quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a pretty good indicator for the stock. Additionally, the company delivered four-quarter average positive earnings surprise of 14.78%. However, the Zacks Consensus Estimate for the company’s earnings indicates a decline of 28.6% from the year-ago quarter reported figure. The stock has a VGM Score of A (read: Can Energy ETFs Rebound as China Promises Ramped-up Purchases?).

Conclusion

All the four ETFs have a Zacks ETF Rank #5 (Strong Sell), suggesting some pain for the same in the coming weeks. However, these funds have the ability to withstand the shocks from any of the major components in their holdings.

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

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

Vanguard Energy ETF (VDE): ETF Research Reports

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

Exxon Mobil Corporation (XOM): Free Stock Analysis Report

Chevron Corporation (CVX): Free Stock Analysis Report

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Zacks Investment Research