4 Energy Stocks With Soaring Estimates Ahead Of Q4 Earnings
Zacks Investment Research | Jan 18, 2018 09:22PM ET
Crude supply has been normalizing of late, pushing the price of WTI and Brent to new three-year highs. Prices of oil at the end of the fourth quarter were $60.46 per barrel, up about 19.6% sequentially. Through most of November and the entire December, the commodity traded above the $55-per-barrel psychological mark.
The improving commodity pricing environment is attributed to tailwinds like the OPEC production cuts, which are expected to continue till 2018-end along with improved demand outlook.
On Nov 30, 2017, OPEC members met non-OPEC players to decide on an extension of the crude production cut accord beyond the first quarter of 2018. This was first signed in late 2016. More than 20 oil producers including leading exporters like Russia and Saudi Arabia participated in the meeting. As expected by most analysts, all crude exporters decided to extend the deal through 2018-end. Countries like Saudi Arabia, Russia and their allies have pledged to put 1.8 million barrels a day of crude oil out of the market through this year-end.
Augmenting the positive momentum, OPEC and IEA energy bodies have raised global oil demand forecasts for 2018, thereby helping to tighten the market significantly. The booming crude oil and gas exports this year reflect substantial demand for U.S. oil.
Notably, energy has been the best S&P sector performer in the third quarter of 2017. The momentum is likely to continue in the fourth-quarter as well. In fact, among all the 16 Zacks sectors on the index, energy is the sole sector, expected to witness triple-digit earnings growth in the fourth quarter.
For the final quarter of 2017, we expect energy to post 178.5% earnings growth on 24.1% higher revenues. This anticipated upside in fourth-quarter results is likely to skyrocket above 152.3% recorded in third-quarter 2017.
Reflecting the raised optimism and a positive sentiment built around the stocks, the sector’s leverage ratio has been improving and free cash flow increasing, thereby signaling an overall improvement in its finances.The sector now has sufficient net operating cash flow to fund its capital spending. Also, the energy sector’s 3.7% dividend yield is lucrative and higher than the S&P 500’s 1.8% yield.
Here’s What We Believe
Given the vast size of the sector, it is no mean task to zoom in on the likely outperformers for the fourth quarter. This is where the Zacks Rank, justifying a company’s strong fundamentals, can come in handy. In addition to a favorable Zacks Rank, the stocks have a sound Zacks Investment Research
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