Are Oil Prices Driving Down Q1 Earnings Estimates?
Investment U | May 10, 2015 01:44AM ET
Oil prices are a big factor this earnings season... even for companies not involved in the energy sector.
This week’s chart looks at how earning-per-share (EPS) estimates for the S&P 500 and Bloomberg’s S&P 500 Oil & Gas Drilling Sub Industry Index have fared against the price of oil.
The Bloomberg index contains a basket of large cap drillers, including ENSCO plc (NYSE:ESV) and Transocean Ltd (NYSE:RIG). As the chart above shows, when EPS estimates for these giants tumble, the rest of the S&P feels the vibrations.
After a spike at the end of 2014, EPS estimates across all sectors of the S&P 500 plunged, not surprisingly, along with crude prices.
As Oxford Club Emerging Trends Strategist Matthew Carr wrote in April: “We’ve known for months that energy earnings were going to be bad. Any time a sector sees its underlying commodity collapse, it’s not good.”
Last quarter, total earnings for the energy sector were down 17.3% on 13.5% lower revenues. And with oil prices still low, estimates for the sector have fallen 47.3% so far in the first quarter of 2015.
From the chart, it’s clear that oil prices have a huge impact - not only on energy companies, but on the broader market. The good news is: if oil prices rally as Energy & Infrastructure Strategist David Fessler has been predicting , current estimates could be gross underestimations for the entire economy.
P.S. Recently, Dave and Resource Strategist Sean Brodrick uncovered the story of the 94-year-old man who is almost single-handedly responsible for America’s entire energy resurgence.
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