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Will Energy ETFs Surprise This Earnings Season?

Energy continues to be the biggest drag on the overall earnings picture since the past several quarters and this quarter is not going to be an exception. This is especially true as earnings for 11.9% of the S&P 500 energy companies that have reported so far are down 60.9% on revenue decline of 30.3%, as per the Zacks Earnings Trend. In addition, total earnings for the sector are expected to be down 110.4% from the same period last year on 29.7% lower revenues.
 
Notably, sluggish earnings report from the world’s largest oilfield services provider –Schlumberger (SLB) – last week disappointed investors as the company not only missed our top- and bottom-line estimates but also posted year-over-year declines on both metrics (read: Schlumberger in Tight Spot Post Earnings; ETFs in Focus).  
 
This has put the spotlight on the broad energy ETFs that have substantial allocations to SLB and the three big U.S. oil companies – Exxon Mobil (XOM), Chevron (CVX) and ConocoPhillips (COP) – that are slated to release their earnings reports this week. These funds include Energy Select Sector SPDR (XLE), Vanguard Energy ETF (VDE), iShares U.S. Energy ETF (IYE) and Fidelity MSCI Energy Index ETF (FENY). Investors should note that these four companies dominate the fund’s portfolio and drive their performances.
 
In fact, these firms occupy the top four positions in IYE and FENY, both accounting for nearly half of the portfolio. The four firms collectively make up for 45.3% of total assets in XLE and 44.1% in VDE (see: all the energy ETFs here).

Given this, let’s delve into the earnings picture of the three oil biggies that have the power to move the funds up or down in the coming days:

What’s in the Cards?

Exxon Mobil is slated to release earnings before the market opens on April 29. The stock has seen negative earnings estimate revision of six cents over the past 90 days for the yet-to-be-reported quarter, representing negative year-over-year growth of 76.1%. It has a Zacks Rank #3 (Hold) and an Earnings ESP of -3.57%, indicating less chances of beating estimates this time around. However, the largest U.S. oil company delivered positive earnings surprises in three of the last four quarters, with an average beat of 13.63%. The stock has a superb Momentum Style Score of ‘A’ but its Value and Growth Style Score of ‘C’ and ‘F’ look miserable.

Chevron, which trails Exxon Mobil, also has a Zacks Rank #3 and an Earnings ESP of -54.55%, indicating less chances of beating estimates this quarter. It delivered average negative earnings surprises of 28.73% in the last four quarters. Further, the Zacks Consensus Estimate for first-quarter 2016 has been revised down from 4 cents to a loss of 11 cents over the past three months. It also represents substantial earnings decline of 108.2% from the year-ago quarter. Further, the stock has an unfavorable Value, Growth and Momentum Style Score of ‘C’, ‘F’ and ‘D’ respectively. The company is expected to report after the opening bell on April 29 (read: Are These ETFs Making You An April Fool?).

ConocoPhillips has a Zacks Rank #3 and an Earnings ESP of +1.84%, indicating a reasonable chance of beating estimates this quarter. However, the earnings surprise track over the past four quarters is not good, with a negative average surprise of 1.16%. Like its peers, ConocoPhillips also witnessed negative earnings estimate revision of 37 cents over the past 90 days for the yet-to-be-reported quarter and is expected to see massive earnings decline of 507.1% year over year. The stock has an unfavorable Value Style Score of ‘D’ and Growth and Momentum Style Score of F. The company will report before the opening bell on April 28.

Conclusion

Though the recent rebound in oil prices erased all the losses that the above-mentioned ETFs incurred this year, each of the four has a miserable ETF Rank of 5 or ’Strong Sell’ rating, suggesting their underperformance in the coming days. This is because energy ETFs will certainly move downward if both Exxon Mobil and Chevron perform as we expect. Even the expected earnings beat for ConocoPhillips did not help in halting the slide in the funds (read: 5 ETFs to Buy if Oil Stays at $40).
 
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SPDR-EGY SELS (XLE): ETF Research Reports
 
VIPERS-ENERGY (VDE): ETF Research Reports
 
ISHARS-US EGY (IYE): ETF Research Reports
 
FID-ENERGY (FENY): ETF Research Reports
 
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
 
CHEVRON CORP (CVX): Free Stock Analysis Report
 
CONOCOPHILLIPS (COP): Free Stock Analysis Report
 
SCHLUMBERGER LT (SLB): Free Stock Analysis Report
 
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