We are in the early innings of the earnings season with just 11% of S&P 500 companies having reported Q4 2022 results. Once again, the energy sector is emerging as the class valedictorian, with the sector’s expected earnings growth of 59.3% for the quarter the highest among the 11 U.S. market sectors, and incomparable to the blended earnings decline for the S&P 500 at -4.6%. Virtually all energy companies that have returned their fourth quarter scorecards have exceeded Wall Street’s expectations. Higher year-over-year oil prices are contributing to the year-over-year improvement in earnings for this sector, as the average price in Q4 2022 ($82.64) was 7% above the average price for oil in Q4 2021 ($77.10).
Indeed, FactSet Earnings says that at the sub-industry level, all five sub-industries in the energy sector are reporting (or are expected to report) a year-over-year increase in earnings of 25% or more: Oil & Gas Refining & Marketing (149%), Oil & Gas Storage & Transportation (82%), Oil & Gas Equipment & Services (79%), Integrated Oil & Gas (59%), and Oil & Gas Exploration & Production (25%).
The Energy sector is also reporting the highest revenue growth rate of all eleven sectors at 10.7% vs. 3.7% by the S&P 500. Further, the sector’s net profit margin of 13.4% is the fourth highest among the 11 sectors and also higher than the S&P 500 average of 11.4%.
Among the energy companies that have reported earnings, oilfield services giant Schlumberger Ltd (NYSE: SLB) has impressed after reporting fourth-quarter revenue of $7.9 billion, good for a 5% sequential increase and 27% year on year. Fourth-quarter GAAP EPS of $0.74 increased 17% sequentially and 76% year on year while EPS, excluding charges and credits, of $0.71 increased 13% sequentially and 73% year on year. The consensus for the company was for earnings to grow 66% to 68 cents per share and revenue to increase 25% to $7.81 billion. SLB CEO Olivier Le Peuch said that revenue grew across all its business divisions and geographical areas and also added there was “robust” year-end sales in the company’s digital services.
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SLB stock has curiously been sliding ever since the company reported on Friday. But FactSet says this trend cuts across the entire market with the market punishing both positive and negative earnings surprises. According to FactSet, companies that have reported positive earnings surprises for Q4 2022 have seen an average price decrease of -0.2% two days before the earnings release through two days after the earnings release. This percentage decrease is much lower than the 5-year average price increase of +0.9% during this same window for companies reporting positive earnings surprises.
Meanwhile, companies that have reported negative earnings surprises for Q4 2022 have seen an average stock price decrease of -2.5%
two days before the earnings release through two days after the earnings. Energy stocks are also likely being negatively impacted by the fact that the sector has seen a big downward revision in revenue growth estimate to 10.7% from 12.4%, the second largest margin of revision after Utilities (from -17.7% to -20.0% ). According to FactSet, downward revisions to revenue estimates for Phillips 66 (to $39.2 billion from $40.8 billion), Chevron (to $53.2 billion from $53.8 billion), and Marathon Petroleum (from $34.5 billion to $33.9 billion) have been substantial contributors to the decrease in the revenue growth rate for the index since December 31.
But that has not stopped Wall Street from gushing over SLB. Benchmark’s Kurt Hallead says Schlumberger and its peer Halliburton Company (NYSE: HAL) are set to benefit in the intermediate term from increased exploration and production spending on international and offshore projects, and become leaders in the energy transition in the long term. The analyst has launched coverage with Buy ratings with respective $65 and $50 price targets, good for 13.3% and 22.9% upside, respectively.
Hallead is broadly bullish on the oilfield services sector (NYSEARCA: OIH), and has awarded Buy ratings to Baker Hughes (NYSE: BKR), Cactus Inc. (NYSE: WHD), Noble Corp. (NYSE: NE), NOV Inc. (NYSE: NOV), Oceaneering International (NYSE: OII), TechnipFMC Plc (NYSE: FTI), Transocean Ltd (NYSE: RIG) and Valaris Ltd (NYSE: VAL). Meanwhile, the analyst has assigned Hold ratings to Helmerich & Payne Inc. (NYSE: HP), Nabors Industries Ltd. (NYSE: NBR), Patterson-UTI Energy (NASDAQ: PTEN) and ProPetro Holding Corp. (NYSE: PUMP).
A flurry of oil majors are expected to report Q4 2022 earnings over the next couple of days and weeks, with Wall Street expecting huge bottom line growth across the board. Exxon Mobil Corporation (NYSE: XOM) will report earnings on 02/07/2023. According to Zacks Investment Research, based on 8 analysts’ forecasts, the consensus EPS forecast for the company is $3.18, a 55.1% jump from the previous year’s comparable quarter.
Chevron Corporation (NYSE: CVX) is expected to report earnings on 01/27/2023 before the market opens. According to Zacks Investment Research, based on 8 analysts’ forecasts, the consensus EPS forecast for the quarter is $4.27, a big 66.8% increase compared to $2.56 posted in Q4 2021.
Halliburton Company is expected to report earnings on 01/24/2023 before the market opens. According to Zacks Investment Research, based on 10 analysts’ forecasts, the consensus EPS forecast for the quarter is $0.67 vs. $0.36 for the previous year’s corresponding quarter.
Meanwhile, Hess Corporation (NYSE: HES) is expected to report earnings on 01/25/2023 before the market opens. According to Zacks Investment Research, based on 7 analysts’ forecasts, the consensus EPS forecast for the quarter is $1.71, good for 100% Y/Y growth. Jefferies Financial Group analyst L. Byrne sees the company doing even better and says he expects Q4 2022 EPS to clock in at $1.75, which is actually a downgrade from the previous estimate of $2.15.
By Alex Kimani for Oilprice.com
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