4 Oil & Gas Earnings to Watch on Nov 2: MPC, DVN, COP & OVV
Given the encouraging commodity price backdrop, four energy players - Marathon Petroleum (MPC), Devon Energy (DVN), ConocoPhillips (COP) and Ovintiv (OVV) - are set to report their third-quarter results on...
We are entering the thick of the Q3 earnings season for Oil/Energy, with a host of companies, including BP plc BP and EOG Resources EOG, expected to come up with results by the end of this week. Before going into the details of the upcoming releases, let’s take a look at the factors affecting the quarterly results and the report card so far.
Commodity Prices Soar Versus Year-Ago Period
Investors should know that there is a high correlation between commodity prices and the earnings of energy companies.
So, how does the price of oil and gas compare with the year-ago period?
According to the U.S. Energy Information Administration, in July, August and September of 2020, the average monthly WTI crude price was $40.71, $42.34 and $39.63 per barrel, respectively. In 2021, average prices were $72.49 in July, $67.73 in August and $71.65 in September, i.e., much stronger year over year.
The news is even better on the natural gas front. In Q3 of 2020, U.S. Henry Hub average natural gas prices were $1.77 per MMBtu in July and rose to $2.30 in August before tumbling to $1.92 in September. Coming to 2021, the fuel traded at $3,84, $4.07 and $5.16 per MMBtu in July, August and September, respectively. In other words, natural gas traded noticeably higher in all three months.
Strength in Realizations to Fuel Impressive YoY Gains
Considering the sharp rise in oil and gas prices, the picture looks rather upbeat for the Q3 earnings season. Per the latest Earnings Trends, energy is on track to have positive earnings compared to losses a year earlier. Per our expectations, the sector is likely to have returned to profitability from third-quarter 2020 loss on 54.4% higher revenues.
Energy investors have ample reasons to rejoice. In fact, with the surge in oil and natural gas prices, a number of companies could grow their bottom lines year over year. As a reflection of this, for the 30.4% S&P 500 companies that have already reported, total earnings are up an astounding 963.4% from the same period last year on 50.8% higher revenues.
But the positive backdrop notwithstanding, the bottom-line beat ratios so far are suggestive of a majority of companies reporting profits short of expectations. A mere 28.6% of the energy operators have managed to pull off a positive earnings surprise so far in the third quarter, with 57.1% beating revenue estimates. For example, biggies like Royal Dutch Shell (RDS.A) and Kinder Morgan missed profit expectations despite all the help from strong commodity prices.
In other words, pricing gains do not necessarily indicate that all energy scrips have a similar beat potential. Given this complex picture, let’s take a glance at how four energy players are placed ahead of their third-quarter results slated for release on Nov 2.
Our proprietary model clearly indicates that a company needs to have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Marathon Petroleum Corporation MPC is slated to report third-quarter results before the opening bell. In the last reported quarter, this refining giant’s earnings beat the Zacks Consensus Estimate by 48.9% on the back of stronger-than-expected performance from both its segments. Over the trailing four quarters, Marathon Petroleum beat earnings estimates on each occasion, with the average surprise being 49.4%. This is depicted in the chart below:
Marathon Petroleum Corporation Price and EPS Surprise
Our proven model predicts an earnings beat for the company this time around too. This is because it has an Earnings ESP of 4.28% and a Zacks Rank #3. The Zacks Consensus Estimate for Marathon Petroleum’s third-quarter earnings and revenues is pegged at 72 cents per share and $17.1 billion, respectively (read more: Is a Beat in Store for Marathon Petroleum's Q3 Earnings?).
Devon Energy Corporation DVN, whose oil and gas operations are mainly concentrated in the onshore areas of the United States, is slated to report quarterly results after the closing bell. Devon Energy came up with better-than-expected bottom-line performance in the last reported quarter on robust production. The company beat the Zacks Consensus Estimate thrice in the last four quarters and missed in the other, ending up with a negative earnings surprise of 2.1%, on average. This is depicted in the chart below:
Devon Energy Corporation Price and EPS Surprise
Things are not looking up for Devon Energy this time around, as it carries a Zacks Rank #1 and an Earnings ESP of 0.00%. While the top Zacks Rank increases the predictive power of ESP, the company’s 0.00% ESP makes surprise prediction difficult this earnings season. The Zacks Consensus Estimate for the company’s third-quarter earnings and revenues is pegged at 92 cents per share and $3.2 billion, respectively.
You can see the complete list of today’s Zacks #1 Rank stocks here.
ConocoPhillips COP — one of the world’s largest independent oil and gas producers holding a bulk of acres in the unconventional plays of North America — is set to report quarterly results before the opening bell. In the last reported quarter, the Houston, TX-based company divulged better-than-expected numbers, driven by increased production volumes due to the Concho Resources acquisition and rising realized commodity prices. Regarding earnings surprises, the upstream major beat the Zacks Consensus Estimate in three of the last four quarters and missed in the other, delivering an earnings surprise of 8.3%, on average. This is depicted in the chart below:
However, our proven model does not conclusively predict an earnings beat for the company this time around. This is because ConocoPhillips has an Earnings ESP of 0.00% and a Zacks Rank #1. The Zacks Consensus Estimate for the company’s third-quarter earnings and revenues is pegged at $1.53 per share and $11.3 billion, respectively.
Ovintiv OVV is an independent upstream operator with an attractive oil and gas production portfolio in three major North American unconventional basins: Montney, Anadarko and the Permian. In the last reported quarter, the firm beat the consensus mark on higher commodity price realization and successful cost-control initiatives. Over the trailing four quarters, Ovintiv beat earnings estimates on three occasions and met on the other, with the average surprise being 24.3%. This is depicted in the chart below:
Our proven model predicts an earnings beat for the company this time around. This is because it has an Earnings ESP of +0.1% and a Zacks Rank #1. The Zacks Consensus Estimate for Ovintiv’s third-quarter earnings and revenues is pegged at $1.47 per share and $2.1 billion, respectively.
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Ovintiv Inc. (OVV): Free Stock Analysis Report
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