The energy sector is booming: how sustainable are the benefits?


ExxonXOM and CVX rafters both missed estimates in their recent first-quarter earnings reports. But the oil giants had record numbers elsewhere. Exxon’s first-quarter earnings soared +219.9% ​​on revenue up +53%, while Chevron’s earnings jumped +278.2% on year-over-year sales of +69, 8%.

It’s not just these supermajors that are literally swimming in the money. Every type of business in the oilfield is booming right now. It’s no surprise that these companies are enjoying the sun, given recent developments in oil and natural gas prices.

The pandemic has been tough on the oil sector, with the immediate aftermath of Covid lockdowns pushing oil futures prices into negative territory. But the rebound was just as impressive. You can see this in the chart below which shows quarterly earnings for the Zacks Energy sector in billions of dollars.

Image source: Zacks Investment Research

As you can see above, the group lost money in the second quarter of 2020 when transport activities came to a halt following the Covid lockdowns.

The sector’s profitability picture is even more impressive on an annual basis, as shown in the chart below.

Zacks Investment Research
Image source: Zacks Investment Research

Please note that what this chart and the previous quarterly version tell us is that the Zacks Energy sector is currently expected to earn $179.6 billion in 2022 and $37.6 billion in the first quarter of 2022.

Interestingly, the industry’s expected earnings in 2022, as well as current estimates for the next two years, represent all-time highs for the space, easily surpassing the previous record set in 2008 when oil prices topped $140 a barrel. .

You can clearly see this in the chart below which shows a much longer period of time.

Zacks Investment Research
Image source: Zacks Investment Research

The energy sector is one of the few sectors benefiting from positive estimate revisions. In fact, the current estimate of aggregate 2022 total revenue for the sector has nearly doubled in the past four months, as shown in the chart below.

Zacks Investment Research
Image source: Zacks Investment Research

Given this impressive trend of revisions, it’s no surprise that the sector has been the leader in stock market performance lately. You can see this in the one-year performance chart below which plots the Zacks Energy sector (blue line, up +30.8%) against the S&P 500 index (red line, down – 2.2%), the Zacks Finance sector (green line, down -7%) and the Zacks Technology sector (orange line, down -14.5%).

Zacks Investment Research
Image source: Zacks Investment Research

The sustainability of these gains will be determined by the sustainability of the current gains in commodity prices. These stocks don’t need a spike in oil prices, what they need instead are stable prices. Greater confidence in the futures price curve will keep the trend of revisions in positive territory, which should help these stocks not only maintain their recent gains, but actually exploit them.

The scoreboard for the first quarter 2022 earnings season

We now have first-quarter results for 437 members of the S&P 500, or 87.4% of the total number of index members. Total profit for these companies was up +8.9% from the same period last year, with revenue up +14.6%, with 79.4% beating EPS estimates and 75 .3% revenue estimates.

Many results are still to come, although the bulk of the S&P 500 earnings are now behind us. This week brings first-quarter results from more than 1,000 companies, including 21 members of the S&P 500.

The comparison charts below put the Q1 2022 earnings and revenue growth rates for these 437 index members in the context of what we had seen from the same group of companies in other periods. recent.

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Image source: Zacks Investment Research

The comparison charts below show Q1 EPS and revenue percentages for these 437 index members in historical context.

Zacks Investment Research
Image source: Zacks Investment Research

Beat percentages previously tracked their lowest levels in recent quarters, but have improved significantly over the past week.

Looking at the first quarter as a whole, with actuals for these 437 index members and estimates for upcoming companies, total earnings are expected to be up +9.4% on revenue in increase of +13.2%.

Excluding the -14.9% decline in financial sector profits, the index’s growth rate improves to +16.9%. On the other hand, the Energy sector has a very robust earnings profile at present, the sector is expected to generate +238.1% additional earnings compared to the prior year period on revenue in increase of +60.3%.

Excluding the strong contribution from the energy sector, earnings for the rest of the index would only rise by +3.4% on revenues up by +9.8%.

Zacks Investment Research
Image source: Zacks Investment Research

The chart below shows the comparable picture on a yearly basis.

Zacks Investment Research
Image source: Zacks Investment Research

For a detailed look at the overall earnings picture, including expectations for future periods, please see our weekly earnings trends report. >>>>Break down Q1 earnings season so far

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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