Profit season is here again, with a quarter of S&P 500 companies reporting second quarter 2021 results. According to FactSet data, 88% of S&P 500 companies reported a positive EPS surprise, while 86% reported a positive earnings surprise.
The good news for oil and gas investors: The long-suffering industry is on course for a repeat of a stellar first quarter by posting sky-high profits, again, in large part due to a surge in prices. oil and gas prices.
Three-quarters of energy companies that reported profits exceeded expectations, while half managed to exceed revenue expectations.
Better yet: the expected 92.1% energy sector revenue growth is a high point for the entire US market.
The energy sector is expected to post profits of $ 13.9 billion for the second quarter of 2021, compared to a loss of – $ 10.6 billion in the second quarter of 2020, thanks to vast improvements in material prices raw materials, particularly crude, which averaged $ 66.17 / bbl in the second quarter of 2021 from $ 28 / bbl. in Q2 2020 and $ 61 / bbl in Q1 2021.
The five sub-industries of the energy sector, namely integrated oil and gas, oil and gas: exploration and production, refining and marketing of oil and gas, oil and gas equipment and services and storage and transportation of oil and gas, report (or are expected to report) an increase in revenues year over year.
Here’s where it gets interesting: U.S. Oil and Gas Supermajor ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) are expected to be the main contributors to improving industry profits, with the two companies expected to account for $ 13.3 billion of the industry’s $ 24.6 billion year-on-year profit increase.
The main themes
That said, Wall Street warns the earnings season may not go smoothly, as investors will not only look at the usual highs and lows numbers, but also focus on three major themes: dividend payouts, energy transition. and climate risk.
Morgan Stanley analysts noted that stock prices of major energy companies are increasingly anchored in their dividend distributions. Unfortunately, Big Oil’s dividend expectations remain “rather static” despite substantial increases in free cash flow forecasts, the bank said.
MS says energy investors only value the cash flows paid to them and give little credit to cash flows kept within companies for expansion.
It’s a sentiment that was supported by Clark Williams-Derry, energy finance analyst at IEEFA, a nonprofit organization, and Kathy Hipple, professor of finance at Bard College in New York.
Williams-Derry warned that there is a “huge degree” of investor skepticism about the business models of oil and gas companies, due to the worsening climate crisis and the urgent need to move away from fossil fuels. Indeed, Williams-Derry claims that the market somehow likes oil companies to contract and not go into new production, but instead use the extra cash generated by improving commodity prices to pay down debt. and reward investors.
Meanwhile, Hipple argued that oil and gas companies can no longer afford to avoid the ongoing climate crisis, from flooding in Europe and China to the extreme heat in the Pacific Northwest.
“Oil companies that ignore the climate in their profit calls will be seen as laggards. Long-term investors will conclude that they present a financial risky, “she told CNBC.
Here’s how America’s oil and gas supermajors are expected to perform during the current earnings season:
# 1. ExxonMobil
Exxon Mobil Corporation is expected to release its second quarter results on July 30, 2021, before the market opens. The report will cover the fiscal quarter ending June 2021.
Exxon has a consensus EPS forecast of $ 1.01 from the $ -0.7 posted in the second quarter of 2020 and revenue of $ 63.96 billion. Exxon has beaten profit expectations for three consecutive quarters.
All eyes will be on ExxonMobil’s climate goals after the company lost three board seats to No.1 Engine, a militant hedge, in a stunning proxy campaign. Engine # 1 indicated to Financial Time that Exxon will need to reduce its production of fossil fuels in order for the company to position itself for long-term success. “What we’re saying is, plan a world where maybe the world doesn’t need your barrels,No. 1 Engine Chief Charlie Penner told the FT.
# 2. Chevron
Chevron Corporation is expected to release its results on July 30, 2021, before the market opens. The report will cover the fiscal quarter ending June 2021.
Chevron has a consensus forecast for quarterly EPS of $ 1.59 compared to -1.59% EPS for the comparable quarter of last year and a revenue estimate of $ 35.98 billion. Chevron missed the last two earnings estimates.
Chevron was one of the companies that was recently downgraded by Gordon Gray of HSBC, saying Big Oil shares will struggle to advance amid market concerns over its ability to move quickly to renewables despite the improvement. cash flow.
“With low-carbon assets expected to contribute only 10-15% of estimated profits by 2030, it is far too early for many investors to see them as transition-themed games: our analysis shows that oil majors are at least a decade behind. utilities and automobiles on a clean energy exhibition “, Gray writes.
# 3. ConocoPhillips
ConocoPhillips (NYSE: COP) is expected to release its results on August 3, 2021, before the market opens. The report will cover the fiscal quarter ending June 2021.
COP has a consensus EPS forecast of $ 1.10, a huge improvement from the $ -0.92 reported for the corresponding period last year, while revenue is expected to hit $ 10.21 billion. COP has beaten earnings estimates for two consecutive quarters.
Last quarter, Bank of America upgraded COP stocks to Buy from Neutral with a price target of $ 67, calling the company a “cash machine” with the potential for accelerated returns.
According to BofA analyst Doug Leggate, Conoco looks like “poised to accelerate cash yields at an earlier and greater rate than any E&P or pure play oil major.
Leggate COP shares returned to more attractive levels “but with a different macro perspective than when [Brent] oil peaked at nearly $ 70. “
But best of all, the BofA analyst believes the COP is highly exposed to longer-term oil recovery.
But BofA isn’t the only Wall Street bettor talking about COP.
In a note to clients, Raymond James says the company’s stock price understates the flow of cash the oil and gas company is about to generate.
The estimated profits and income for the other four members of the Supermajors are as follows:
Royal Dutch Shell (NYSE: RDS.A) is expected to release its results on July 29, 2021, before the market opens. The report will cover the fiscal quarter ending in June 2021. Shell has a consensus EPS forecast for the quarter of $ 1.16 and a consensus revenue of $ 57.97 billion.
BP Plc. (NYSE: BP) will release its second quarter results on August 3, 2021, before the market opens. The report will cover the fiscal quarter ending June 2021. BP has a consensus EPS forecast for the quarter of $ 0.59 with a consensus revenue estimate of $ 38.26 billion.
TotalEnergies SE (NYSE: TTE) is expected to release results on June 29, 2021. The French supermajor is expected to post EPS of $ 1.26 and revenue of $ 42.20 billion.
Eni SpA (NYSE: E) is expected to release second quarter results on August 3, 2021. No BPA estimate available for the Italian oil and gas giant, although analysts have a consensus estimate of revenues of $ 17.04 billion. of dollars.
By Alex Kimani for Oil Octobers
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