All posts from Zacks
Zacks in Our Research. Your Success.,

4 Energy Stocks Set to Beat Q3 Earnings

The Q3 earnings season is approaching its end, with 65.4% S&P 500 companies having already released results. The season has also seen releases from 67.7% of the companies in the energy space, belonging to the index. According to the latest  Earnings Trends, total earnings for these energy firms are up 127.2% from the same period last year on 18.7% higher revenues. Notably, 76.2% of the companies have reported positive earnings surprises so far, with 71.4% beating revenue estimates.

Our report also shows that energy is the only sector among the 16 representing the S&P 500 index to witness triple-digit earnings growth in Q3.

Although majority of the key energy players have reported their quarterly numbers, there are still a few energy companies that are expected to come up with solid results. These companies can make valuable addition to your portfolio now.

Oil Recovers in Q3

As per macrotrends, The West Texas Intermediate (WTI) crude saw a 12.2% gain during the third quarter of 2017 after two consecutive quarters of decline this year. Notably, this is the highest quarterly gain since the April-to-June quarter of 2016.

According to The U.S. Energy Information Administration (EIA), average monthly prices for each month of the third quarter of 2017 were higher than the year-ago comparable period. Lower global crude inventory helped ease the crude supply glut concern which primarily supported the oil price rally in the third quarter.

Oversupply Concerns Ease in Q3

Per the EIA, during the July-to-September quarter of this year, worldwide oil inventories declined by 500,000 barrels per day (B/D). With this, the inventory level fell for three quarters in a row.

According to The Oil & Gas Journal, Organization of the Petroleum Exporting Countries (OPEC) produced an average of 32.9 million B/D in the third quarter as compared to last November’s 33.4 million B/D. Thus, it can be safely concluded that the leading crude exporter’s landmark production cut deal primarily supported the draws in global crude inventory.

Crude Turnaround Drives Earnings

Most of the major energy firms have reported strong Q3 numbers so far. ExxonMobil Corporation (XOM), the world’s largest publicly traded oil company, reported earnings of 93 cents per share, which surpassed the Zacks Consensus Estimate of 89 cents. Also, the bottom line improved from the year-ago quarter level of 63 cents.

British energy giant BP plc (BP) reported third-quarter adjusted earnings of 57 cents per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The bottom line surpassed the Zacks Consensus Estimate of 50 cents and the year-ago earnings of 30 cents.

Another European energy major Royal Dutch Shell plc (RDS.A) reported earnings per ADS (on a current cost of supplies basis, excluding items – the market’s preferred measure) of 98 cents, breezing past the Zacks Consensus Estimate of 83 cents and the year-ago profit of 70 cents.

These releases clearly show the positive impact of the promising Q3 crude pricing environment on the bottom-line performance of key energy companies.

How to Make the Right Pick?

Since crude determines the fate of energy companies, the favorable oil price scenario will support Q3 numbers for energy firms that are yet to report results.

Given the plethora of issues faced by the Oils/Energy sector, picking the most investment-worthy stock is undoubtedly a daunting task. This is where the Zacks methodology comes to the rescue. One could narrow down the list using positive Earnings ESP as a guide, along with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Here are four energy companies that are poised to beat earnings this season:

Headquartered in Plano, TX, Denbury Resources Inc. (DNR) is an upstream energy firm with strong foothold in the Rocky Mountain region and the Gulf Coast area.

Denbury is likely to beat third-quarter earnings as it has an Earnings ESP of +11.11% and a Zacks Rank #2. The company is expected to report third-quarter results before the opening bell on Nov 7.

Energen Corporation (EGN), headquartered in Birmingham, AL, is primarily involved in exploration and production activities in the oil-rich Permian Basin.

The company is slated to release third-quarter results on Nov 8. We expect Energen to surpass the consensus estimate as it has a Zacks Rank #3 and an Earnings ESP of +9.48%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Based in Denver, CO, Resolute Energy Corporation (REN) is involved in the exploration of unconventional crude and natural gas resources. The firm will report third-quarter results on Nov 6, after the closing bell. We believe Resolute Energy will beat the Zacks Consensus Estimate given its Zacks Rank #3 and Earnings ESP of +28.91%.   

Extraction Oil & Gas, Inc. (XOG), headquartered in Denver, CO, is scheduled to report third-quarter results on Nov 7, after the closing bell. With an Earnings ESP of +4.55% and Zacks Rank #3, we expect this upstream energy player’s earnings to beat the Zacks Consensus Estimate this quarter.     

Zacks’ Best Private Investment Ideas

While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.

Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors.

Click here for Zacks' private trades >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Energen Corporation (EGN): Free Stock Analysis Report
Denbury Resources Inc. (DNR): Free Stock Analysis Report
Resolute Energy Corporation (REN): Free Stock Analysis Report
EXTRACTION O&G (XOG): Free Stock Analysis Report
BP p.l.c. (BP): Free Stock Analysis Report
Exxon Mobil Corporation (XOM): Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research