As we move through earnings season, the energy sector is projected to post one of the worst overall performances of all sector groups. The lone bright spot for the energy companies may be the refiners, as favorable spreads and demand should enable them to grow profits at a respectable pace. For most of the sector, though, lower energy demand and lower crude oil and natural gas prices will keep a lid on growth prospects this quarter.
Let’s take a look at the major players — with the help of Portfolio Grader — and see what the upcoming reports may reveal.
Among the largest integrated oil and gas companies, I don’t see much room for optimism — or ownership, for that matter. Although pundits like to chatter about how much money ExxonMobil (NYSE:XOM) makes, there’s nothing exciting going on at the largest oil and gas company. Analysts have been lowering estimates, and the company has a weak history of earnings surprises, with two of the last four quarter showing a negative surprise. The stock receives a “D,” or sell, rating from Portfolio Grader — I see no reason to own the stock going into what should be a weak earnings report later this week.
Chevron (NYSE:CVX) scores a little better, as it’s ranked a “C,” or hold, by my stock selection tool. Analysts have raised their estimates a bit in the past week. But I would not be a buyer of the shares; it will be nigh impossible for the company to escape the impact of lower oil and gas prices and post a blowout earnings report that would lift the stock.
The refiners may fare a little better, as they have been able to buy crude stock cheaply while the price of refined products has not dropped as quickly. Valero (NYSE:VLO) has posted four consecutive strong earnings surprises as analysts have underestimated margin strength at the company. Several analysts have recently upgraded their expectations for the company and the stock has a “B,” or buy, rating right now. Marathon Petroleum (NYSE:MRO) has benefited from the same circumstances and receives our highest grade of “A” — it’s a strong buy ahead of the April 30 earnings release. Among other large refiners, Phillips 66 (NYSE:PSX) is rated a buy and Hess (NYSE:HES) has a hold ranking.
Analysts do not expect much from the oil services and equipment companies … and nether should investors. Industry leader Schlumberger (NYSE:SLB) is rated a sell by Portfolio Grader after reporting lower net earnings, and the rest of the sector is not expected to fare any better. When oil and gas demand is down — as we’re seeing now — demand for the products and services needed to find and produce oil and gas see a sharp drop off in demand as well. None of the larger oil services company has a buy rating right now — I’d avoid them during what should be an unexciting earnings season.
With the exception of a few select refiners, it’s not going ot be a good earnings season for energy-related companies. Fortunately Portfolio Grader can help us avoid sectors that could lead to disappointment and losses like we may see in energy-related stocks.