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Peek Into Oil Q4 Earnings on Feb 16: TRP, ECA, CVE, OMVJF


We have reached the final stretch of the Q4 earnings season, with results on board from 358 S&P 500 members that combined account for almost 72% of the index’s total market capitalization. And with 53 S&P 500 members coming up with results this week, one would have seen Q4 numbers from more than 80% of the index’s total membership by the end of Friday.

According to the latest Earnings Preview report, overall earnings for the companies that have already reported are up 6.1% from the same period last year on 4.6% higher revenues, with 69% positive earnings surprises and 54.7% beating revenue estimates.

Energy on the Growth Path, Finally

Following eight back-to-back quarters of earnings decline, analysts said that the sector was likely to get better in the fourth quarter and clock its first positive earnings growth after two years. With estimate revisions going up following OPEC’s Algeria grandstand, the Oil/Energy sector’s earnings were expected to improve 8.8% from fourth-quarter 2015 levels.

True to the predictions, the sector has come out swinging. For the 52.8% sector components on the S&P 500 index that have reported Q4 results, total earnings are up 11.3% on 2.9% higher revenues. While 63.2% of the companies have been successful in beating earnings estimates, 68.4% of them have outperformed the top line.

The Oil/Energy sector’s positive growth largely reflects better-than-expected quarterly profit from bellwether ExxonMobil Corp. XOM, which more than offset smaller rival Chevron Corp.’s CVX disappointing Q4 numbers.

Let's take a look at how oil and gas prices behaved during the fourth quarter.

Q4: Rebounding Oil & Natural Gas Prices

The OPEC deal and extreme weather conditions engineered a hefty rise in oil and gas prices during the fourth quarter.

A historic OPEC production cut agreement, together with help from non-OPEC producers saw oil prices end the year at $53.72 a barrel – representing a gain of 11.4% sequentially and 45% for the year.

Meanwhile, natural gas embarked on its own upward journey, with futures jumping around 25% just in the fourth quarter. Ending the year at $3.724 per million Btu (MMBtu) – up 59% from 2015 – the heating fuel was buoyed by a cold snap that translated into strong demand.

Stocks to Watch for Earnings on Feb 16

Let’s see what’s in store for four energy companies expected to come up with fourth-quarter numbers on Thursday, Feb 16. Let’s take a look at how things are shaping up at their end.

A major North American energy infrastructure company, TransCanada Corp. TRP is expected to report fourth-quarter 2016 results after the closing bell.

In the third quarter of 2016, this Calgary, Alberta-headquartered oil and natural gas transmission network owner managed to beat estimates, helped by its high-quality portfolio of midstream energy assets and contributions from the recently acquired Columbia Pipeline Group.

Coming to earnings surprise history, the company has a mixed record: its beaten/met estimates in 2 of the last four quarters.

However, an earnings beat looks uncertain for TransCanada this time around. This is because, as per 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 earnings. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

For the quarter to be reported, TransCanada has an Earnings ESP of 0.00%, while it carries a Zacks Rank #3.

Simultaneously, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

We also have another Canadian entity Encana Corp. ECA coming up with fourth-quarter 2016 results Thursday – this time before the market opens. Coming to earnings surprise history, the company – which is a focused pure-play natural gas explorer and producer – has a good track of having outperformed estimates in three of the last four quarters.

But with an Earnings ESP of 0.00% and Zacks Rank #2, our proven model shows that an earnings beat is not guaranteed for Encana in the to-be-reported quarter. Though a Zacks Rank #2 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult. (Read more: What's in Store for Encana Corporation in Q4 Earnings? )

You can see the complete list of today’s Zacks #1 Rank stocks here.

Encana Corporation Price and EPS Surprise

Cenovus Energy Inc. CVE is the third Calgary-based energy player coming out with fourth-quarter numbers tomorrow.

Spun off from Encana in 2009, Cenovus is a large integrated oil company with a focus on the Canadian Oil Sands. It also produces oil and natural gas while also being involved in the transportation and refining of crude oil.

Coming to earnings surprise history, Cenovus has a dismal track record: its missed estimates in three of the last four quarters at an average rate of -112.61%.

We do not expect Cenovus to beat earnings expectations in the to-be-reported quarter as well. This is because the company is a Zacks Rank #2 stock but has an Earnings ESP of -20.00%

Cenovus Energy Inc Price and EPS Surprise

Cenovus Energy Inc Price and EPS Surprise | Cenovus Energy Inc Quote

Lastly, there is Austria-based integrated oil company OMV AG OMVJF coming up with fourth-quarter numbers tomorrow.

Our model does not indicate that the company – with operations in Upstream, Downstream, Chemicals and Gas & Power – is likely to beat on earnings this time around as it has a Zacks Rank #4 and an Earnings ESP of 0.00%.

OMV AG Price and EPS Surprise

OMV AG Price and EPS Surprise | OMV AG Quote

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