Everyone knows Energy is going to be a mess when the q1 ’15 earnings reports start in two weeks, first with Exxon Mobil Corporation (NYSE:XOM) and Chevron (NYSE:CVX), then Halliburton Company (NYSE:HAL) and Schlumberger NV (NYSE:SLB), and then the rest of the E&P space reporting later in the month.
Here is a spreadsheet I prepared tonight just to compare 2015 estimates with 2016 estimates for a few of the sectors: Energy Sector (preq1’15 reports)
A couple things should jump out to a discerning reader:
1.) 2015 EPS and revenue estimates for the Energy sectors looks quite ugly (i..e expectations by now have been reduced substantially), while 2016 estimates are looking for a speedy recovery.
2.) Halliburton and Schlumberger actually are showing less deterioration in their 2015 and 2016 estimates than Exxon and Chevron, despite the conventional wisdom that being integrated oil companies, their earnings and revenue streams are less volatile.
3.) The mid-water drillers like Transocean Ltd (NYSE:RIG) and Diamond Offshore Drilling Inc (NYSE:DO) are thought to be in secular decline, but that hasn’t stopped Mr. Icahn from holding them for a while.
After avoiding the sector completely in 2014, I have started buying some positions in longer-term accounts, i.e. right now Exxon, Halliburton and Schlumberger.
Although I haven’t put up the charts, Halliburton and Schlumberger, still remain above their upward-sloping trend line off the March, 2009 low. That to me is telling, given that in 2012, Hallibuton traded down to $30 and Schlumberger down to $60 on erosion in North American margins. I would be prepared to buy more of both names at those technical levels, should the stocks trade there.
Of the two, I probably favor Halliburton given the Baker-Hughes acquisition gives HAL some wiggle room on additional expense i.e. synergy savings.
Will 2016 see a sharp rebound ? I think we’ll no more after mid-May ’15. The revisions should be interesting.
Energy actually outperformed the Financials in q1 ’15, declining 1.6% versus the Financial sector’s decline of 3% per ycharts.com.