The Q3 earnings season is in the nascent stage with 80 S&P 500 members scheduled to release their quarterly results this week.
So far, 34 S&P 500 members have announced their Q3 results. Total earnings for these companies are up 1.3% from the year-ago period on 2.9% higher revenues. While 79.4% of these companies delivered positive earnings surprises, 64.7% managed to beat revenue estimates (data from the Earnings Preview report dated Oct 14, 2016).
Crude Performance in Q3
Given that oil determine the fate of energy companies it of utmost importance to note the pricing movement of the commodity during Q3. Overall, oil prices recovered significantly from the mid-February lows. This is undoubtedly favorable for upstream energy firms as commodity price improvement should translate into more exploration and production activities. This is evidenced by the substantial increase in the U.S. rig count in recent times.
In fact, Baker Hughes Inc. BHI – the company’s data issued since 1944 is as an important yardstick for energy service providers in gauging the overall business environment of the oil and gas industry – recently declared the rig count for Sep 2016. In the U.S., the total number of rigs increased from the Aug 2016 count owing to a rise in the number of land rigs. This represents the fourth consecutive increase in the U.S. monthly rig count.
We expect increased drilling activities to create more work for oilfield services players and the companies engaged in manufacturing oil filed machineries and equipment. Moreover, a rise in production activities is expected to increase the need for storage and transportation of the commodity.
However, the overall earnings picture will become clearer as we move further ahead. With more and more companies slated to release their financial numbers this week, we expect a better insight into the performance of the sector. Meanwhile, let’s take a look at how these four oil stocks might fare in Q3 when these report their quarterly numbers on Oct 19.
What’s in Store for These Oil Stocks?
Oilfield services company, Core Laboratories NV CLB is set to release Q3 results after the closing bell. In the preceding three-month period, the firm’s earnings came in line with the Zacks Consensus Estimate. In fact, Core Laboratories has posted earnings in line with estimates in each of the last four quarters.
Our quantitative model does not show conclusively that Core Laboratories is likely to beat on earnings this quarter. According to our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat on earnings. Unfortunately, this is not the case here.
This Amsterdam, the Netherlands-based company has an Earnings ESP of 0.00% and a Zacks Rank #4. Please note that the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
Oil drilling equipment maker, FMC Technologies Inc. FTI is set to release Q3 results on Oct 19, after the closing bell. In the preceding three-month period, the Houston, TX-based firm delivered a negative earnings surprise of 26.67%. The underperformance stemmed from weakness in the North American land market and a negative impact of the strengthening U.S. dollar. Record low rig counts in North America also contributed to the downside. Coming to earnings surprise history, the company does not have a good record. FMC Technologies missed estimates in three of the last four quarters
Moreover, our proven model does not show that the company is likely to beat expectations this quarter because it has an Earnings ESP of 0.00% and a Zacks Rank #3. . (Read more: FMC Technologies Q3 Earnings: A Surprise in Store?)
Major oilfield service provider Halliburton Co. HAL is set to release Q3 results before the opening bell on Oct 19, The company beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 36.33%.
Moreover, our proven model shows that the company is likely to beat expectations this quarter because it has the right combination of two key ingredients –an Earnings ESP of + 14.29% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Midstream energy assets operator, Kinder Morgan, Inc. KMI is expected to report Q3 earnings after the closing bell on Oct 19. Over the last four quarters, the company posted average positive earnings surprise of 6.89%.
We note that the improved commodity pricing scenario has called for more exploration and production of oil and gas, which in turn, should lead to more storage and transportation activities. Since, the company has huge midstream assets, it is poised to gain from these developments in Q3. However, an earnings beat does not look certain this time around. This is because the company has a Zacks Rank #3 but an Earnings ESP of 0.00%. (Read more: Can Kinder Morgan Pull a Surprise in Q3 Earnings?)
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