3 oil stocks poised to break the record this earnings season
The price of West Texas Intermediate crude was trading well above $70 per barrel most of the time in the late December 2021 quarter. The commodity even hit $84 per barrel in early November of the year. last. Thus, compared to the comparable quarter of the previous year, the price of raw materials improved significantly. Soaring oil price realizations were a game-changer for upstream players in the fourth quarter.
The favorable scenario for raw material prices, due to the strong recovery in energy demand, should have triggered an increase in activity in the upstream market. The recovery in fuel demand was triggered primarily by the massive deployment of coronavirus vaccines.
What does this mean for energy players?
Rising commodity prices have encouraged explorers and oil producers to gradually return to shale resources in the United States. Notably, during the week to October 1, 2021, the number of oil rigs was 428 in US resources, which increased to 480 during the week to December 31, 2021, according to the weekly rig count data released by Baker Hughes Company BKR. The number of rotating platforms, published by Baker Hughes, is usually published in leading newspapers and trade publications.
So, it is quite evident that the upstream businesses improved significantly in the late December quarter amid the pandemic. The improvement is reflected in the latest Zacks Earnings Trend report, which suggested that profitability in the energy sector was barely in positive territory during the year-ago quarter. However, it is expected to earn $30.9 billion in the end-December 2021 quarter.
In the natural gas sector, data from Baker Hughes suggests that the number of gas rigs in the United States rose to 106 in the week to December 31, 2021, from 99 in the week. until October 1, 2021, due to rising commodity prices. prices. Thus, favorable commodity prices likely benefited explorers and natural gas producers.
How to identify potential winners?
It’s worth keeping an eye out for companies that have the potential to overshoot earnings, as a stock typically explodes when earnings beat.
However, with a wide range of energy companies flooding the investment space, it is by no means an easy task for investors to come up with stocks that have the potential to generate earnings above expectations. While it’s impossible to be sure about these outperformers, our proprietary methodology makes it pretty simple.
Our research shows that for stocks with the combination of a positive ESP on earnings and a Zacks rank of #1 (strong buy), 2 (buy), or 3 (hold), the probability of a positive surprise on profits can reach 70%. You can discover the best stocks to buy or sell before they’re flagged with our earnings ESP filter.
Earnings ESP is our proprietary methodology for determining which stocks have the best chance of surprising with their next earnings announcement. This is the percentage difference between the most accurate estimate and the Zacks consensus estimate.
Below, we’ve selected three industry players who are expected to report their Q4 2021 results soon.
Diamondback Energy, Inc. FANG is an independent oil and gas exploration and production company in the United States. The upstream player is primarily focused on the Permian Basin, where it owns around 414,000 net acres. Diamondback Energy, with an ESP on earnings of +0.91% and a No. 3 Zacks ranking, is set to report quarterly results on Feb. 22. You can see the full list of today’s Zacks #1 Rank stocks here.
When it comes to earnings surprises, the Midland, Texas-based company has beaten the Zacks consensus estimate in the previous four quarters, delivering an earnings surprise of 11.7% on average. Zacks’ consensus estimate for Diamondback Energy’s earnings is pegged at $3.38 per share, suggesting a massive improvement from the figure reported a year earlier.
Diamondback Energy, Inc. Price and EPS Surprise
Diamondback Energy, Inc. price-eps-surprise | Quote from Diamondback Energy, Inc.
You can also consider Viper Energy Partners LP VNOM, a subsidiary of Diamondback Energy, with a Zacks Rank #3 and an Earnings ESP of +14.93%. VNOM generates strong and stable royalty income from the Eagle Ford and Permian Basin mining interests.
Viper Energy beat the Zacks consensus estimate in three of the previous four quarters and missed the same once, delivering a surprise profit of 103.13%. It is scheduled to publish its quarterly results on February 22. Zacks’ consensus estimate for VNOM’s earnings is pegged at 19 cents per share, suggesting a 58.3% improvement over the figure released the previous year.
Viper Energy Partners LP award and EPS surprise
Viper Energy Partners LP price-eps-surprise | Quote from Viper Energy Partners LP
Finally, we have PDC Energy Inc. PDCE, which has a #3 Zacks rank and +3.50% ESP gain. The Denver, CO.-based company, which focuses on the Wattenberg field in Colorado and the Delaware Basin in Texas, is scheduled to release quarterly results on Feb. 28.
Over the past four quarters, PDC Energy has exceeded the Zacks consensus estimate on all occasions, with the surprise averaging 51.06%. The Zacks consensus estimate for PDCE earnings is pegged at $2.40 per share, suggesting a massive improvement from the figure reported the year before.
PDC Energy, Inc. Awards and EPS Surprise
PDC Energy, Inc. price-eps-surprise | Quote from PDC Energy, Inc.
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PDC Energy, Inc. (PDCE): Free Stock Analysis Report
Baker Hughes Company (BKR): Free Stock Analysis Report
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Viper Energy Partners LP (VNOM): Free Stock Analysis Report
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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.