With the Oil/Energy sector’s first-quarter earnings season being in full swing, let’s take a look at the factors impacting the quarterly results of sector participants this time around.
Collapsing Oil & Gas Prices
Oil & Gas Price Plunge
By now, it’s a widely-known fact that the coronavirus induced a massive slump in oil demand amid a supply glut. With major cities on lockdown and travel restrictions in place, the consumption for crude slumped substantially during the first three months of 2020.
Per the U.S. Energy Information Administration, WTI prices commenced the first quarter of 2019 at around $47 per barrel and exited the period at $60 per barrel. In 2020, prices were just above $60 a barrel at the start of the year but plunged to $20 at March-end.
The picture is not rosy on the natural gas front either.
In first-quarter 2019, natural gas prices were just below $3 per MMBtu in the beginning and fell slightly to end March at $2.7 per MMBtu. Coming to 2020, the fuel was trading at $2.2 per MMBtu in the beginning of January and struggled throughout the quarter to close at $1.64 per MMBtu.
Energy Players to Hit a Bumpy Road
Taking into account the sharp drop in commodity price, the scenario looks rather downbeat for the first-quarter earnings season.
The latest Earnings Trend suggests that Energy sector is likely to have experienced a big earnings underperformance from the year-earlier level. Per our expectations, the sector’s earnings are likely to have fallen 54.7% from first-quarter 2019 on 12.1% lower revenues.
For the few companies that already reported financial results, total earnings dipped 1% from the same period last year on 5.2% lower revenues with 100% positive earnings surprises but no revenue beat.
Some Energy Firms to Stand Their Ground Despite Pricing Woes
Clearly, energy investors have ample reasons to worry about. But pricing concerns do not necessarily indicate that all energy scrips have lost potential. In fact, the bottom-line beat ratios have so far hinted at encouraging numbers this reporting cycle and are validated by the oilfield service major’s results. Industry bigwigs like Schlumberger (NYSE:SLB) SLB, Halliburton HAL and Baker Hughes bore the brunt of weaker oil and gas prices but still surpassed profit expectations.
Investing in companies with earnings beat potential can fetch handsome returns for investors. This is because a stock generally surges on an earnings beat.
Key Releases on Apr 30
Against this backdrop, let’s take a glance at how four energy players are placed ahead of their respective March-quarter results, slated for release on Apr 30.
Cheniere Energy (NYSE:LNG) LNG is primarily engaged in businesses related to liquefied natural gas (or LNG) through its two business segments: LNG terminal, and LNG and natural gas marketing.
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You can see the complete list of today’s Zacks #1 Rank stocks here.
In the last reported quarter, this energy entity’s earnings topped the consensus mark by 31.5% on the back of strong output gains. Moreover, the bottom line skyrocketed from the year-ago quarter owing to solid contribution from LNG revenues.
As far as positive surprises are concerned, this Houston, TX-based company’s earnings surpassed the Zacks Consensus Estimate in two of the trailing four quarters, missing the same in the remaining two. The average negative surprise is 484.54%.
Our proven model does not conclusively predict a beat for Cheniere this earnings season as it has an Earnings ESP of -13.52% and a Zacks Rank #4 (Sell).
The Zacks Consensus Estimate for earnings is pegged at 47 cents while the consensus mark for revenues stands at $2.54 billion.
Another energy player is Concho Resources (NYSE:CXO) CXO. This exploration and production company’s earnings missed the Zacks Consensus Estimate in three of the last four quarters, beating the same in the remaining one, the average positive surprise being 4.52%.
Concho Resources is likely to deliver a positive surprise for the first quarter as it has the favorable combination of the two key ingredients: an Earnings ESP of +3.48% and a Zacks Rank #3.
The Zacks Consensus Estimate for first-quarter earnings of 72 cents hasn’t been revised downward in the past seven days. The consensus estimate for revenues is pegged at $1.10 billion, indicating a dip from the prior-year reported figure. (Is a Beat Likely for Concho Resources in Q1 Earnings?)
Then we have Cabot Oil & Gas Corporation (NYSE:COG) COG. It is an independent gas exploration company with producing properties, mainly in the continental United States.
As far as positive surprises are concerned, this Houston-based company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, meeting the mark on one occasion, the average beat being 6.37%.
Our proven model does not conclusively predict an earnings beat for the company this reporting cycle as it has an Earnings ESP of -3.63% and a Zacks Rank of 3.
The Zacks Consensus Estimate for earnings is pegged at 13 cents and for revenues is $386.9 million. (Read more: Will Production Growth Drive Cabot (NYSE:CBT) in Q1 Earnings?)
Southwestern Energy Company (NYSE:SWN) SWN is primarily engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids (NGLs) in the United States. It reported fourth-quarter 2019 earnings per share of 18 cents, beating the Zacks Consensus Estimate of 10 cents. The better-than-expected earnings were supported by higher liquids production, partially offset by lower average realized commodity prices.
As far as the surprise record is concerned, this Spring, TX-domiciled company’s earnings outperformed the Zacks Consensus Estimate twice in the trailing four quarters, meeting and missing estimates on the remaining two occasions each. The positive surprise is 21.57%, on average.
Our proven model does not conclusively predict a beat for the company this time around as it has an Earnings ESP of 0.00% and a Zacks Rank #2.
The Zacks Consensus Estimate for first-quarter earnings of 7 cents has been revised downward in the past 7 days. The expected figure, however, implies a 74.07% decrease from the year-ago reported number of 27 cents. The consensus estimate for revenues is pegged at $643.36 million, hinting at a fall of 35.01% from the prior-year reported figure.
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Southwestern Energy Company (SWN): Free Stock Analysis Report
Schlumberger Limited (SLB): Free Stock Analysis Report
Halliburton Company (NYSE:HAL
Cabot Oil & Gas Corporation (COG): Free Stock Analysis Report
Concho Resources Inc. (CXO): Free Stock Analysis Report
Cheniere Energy, Inc. (LNG): Free Stock Analysis Report
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