As the Energy sector prospects are tied to crude prices, the partial recovery in commodity prices and modest improvement in fuel demand are likely to have mostly influenced results this earnings season.
Partial Crude Recovery
Although the pricing scenario of crude was grimmer in the September quarter as compared to the year-ago comparable period, the commodity’s price has recovered sequentially in the third quarter. The partial recovery was backed by the easing of lockdown measures put in place to combat the coronavirus pandemic.
The uptick in oil prices also provided incentives to explorers and producers to gradually ramp up upstream activities. Notably, unlike the second quarter, there has not been a drastic fall in the count of oil rigs in the United States in the third quarter. In fact, some of the upstream players have resumed rig addition.
How Did the Energy Sector Fare?
Like upstream businesses, the downstream operations were likely favored by improved fuel demand in the September quarter. Particularly, the easing of social-distancing measures has likely boosted demand for gasoline and jet fuel, aiding refiners.
The business model for midstream players has always relatively been less exposed to volatility in oil and gas prices. Generally, the pipeline and terminal operators earn stable fee-based revenues from shippers and the story has likely to have more or less remained the same in the third quarter.
Picking the Right Stocks
Given the overall business scenario is likely to have recovered partially in the third quarter, however, screening winning stocks from too many participants is not easy. A simple way to streamline the list is by selecting stocks with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks with this combination have 70% chances of delivering an earnings surprise.
Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
Using this proven model, we have highlighted four Energy stocks that are likely to beat on earnings in their upcoming releases.
Based in Steinhausen, Switzerland, Transocean Ltd. RIG is a premier offshore drilling company. The company, scheduled to report third-quarter results on Nov 2, has an Earnings ESP of +6.00% and a Zacks Rank #3. Transocean also delivered an average earnings surprise of 16.6% for the last four reported quarters.
Transocean Ltd. Price and EPS Surprise
Transocean Ltd. price-eps-surprise | Transocean Ltd. Quote
Enbridge Inc. ENB, headquartered in Calgary, Canada, is a leading energy infrastructure company in North America. The firm, expected to report third-quarter results on Nov 6, has an Earnings ESP of +0.61% and a Zacks Rank #3. Enterprise Products has an average earnings surprise of 3.4% for the last four reported quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
Enbridge Inc Price and EPS Surprise
Enbridge Inc price-eps-surprise | Enbridge Inc Quote
Marathon Oil Corporation MRO, headquartered in Houston, TX, is a leading explorer and producer with strong footprint in oil-rich resource plays in the United States.
The company has an Earnings ESP of +1.50% and a Zacks Rank #3. Marathon Oil, scheduled to report third-quarter results on Nov 4, beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters, the average surprise being 54.4%.
Marathon Oil Corporation Price and EPS Surprise
Marathon Oil Corporation price-eps-surprise | Marathon Oil Corporation Quote
Headquartered in Irving, TX, Pioneer Natural Resources PXD is the leading producer of oil in the prolific Permian basin. The stock, carrying a Zacks Rank #3, has an Earnings ESP of +30.00%. Pioneer Natural, scheduled to report third-quarter earnings on Nov 4, has beat the consensus estimate in three of the last four quarters, the average earnings surprise being 7.5%.
Pioneer Natural Resources Company Price and EPS Surprise
Pioneer Natural Resources Company price-eps-surprise | Pioneer Natural Resources Company Quote
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