It's earnings season and once again, the energy sector is leading the pack. With expected growth of 59.3% for the quarter, it has far outperformed the S&P 500 with its decline of -4.6%. Virtually all energy companies that have released their fourth quarter results have exceeded Wall Street's expectations.
The energy sector has seen a boost from higher year-over-year oil prices. The average price of oil in Q4 2022 was $82.64, 7% above the average price for oil in Q4 2021 of $77.10. This is helping drive the sector's impressive revenue growth rate of 10.7% compared to the S&P 500's 3.7%. Additionally, the sector's net profit margin of 13.4% is fourth highest among all 11 sectors and higher than the S&P 500 average of 11.4%.
One company doing particularly well is Schlumberger Ltd (NYSE: SLB). The oilfield services giant reported fourth-quarter revenue of $7.9 billion, a 5% sequential increase and 27% year-on-year. GAAP EPS of $0.74 increased 17% sequentially and 76% year over year, while EPS excluding charges and credits increased 13% sequentially and 73% year over year. The company beat consensus estimates for both earnings and revenue growth.
Despite these strong results, Schlumberger stock has been sliding since Friday's report. But FactSet says this trend is across the market, with companies that have reported positive earnings surprises seeing an average price decrease of -0.2%. This is much lower than the 5-year average price increase of +0.9% during this same window for companies reporting positive earnings.
Companies that reported negative earnings for Q4 2022 have seen their stocks take an average hit of -2.5% in a two-day time period surrounding the release. This trend is likely due to the energy sector's downward revision in revenue growth estimates, from 12.4% to 10.7%. Significant downward revisions to revenue estimates for firms such as Phillips 66, Chevron and Marathon Petroleum have been major contributors to the decrease of the sector’s overall revenue growth rate since December 31st.
Despite this, Wall Street has reacted positively to Schlumberger (SLB): analyst Kurt Hallead has issued Buy ratings on SLB and Halliburton Company (HAL) with respective price targets of $65 and $50; promising 13.3% and 22.9% upside respectively based on increased exploration and production spending on international and offshore projects in the intermediate term, alongside their long-term roles in energy transition. Hallead has also issued Buy ratings for Baker Hughes (BKR), Cactus Inc.(WHD), Noble Corp.(NE), NOV Inc.(NOV), Oceaneering International (OII), TechnipFMC Plc (FTI), Transocean Ltd (RIG) & Valaris Ltd (VAL). Hold ratings were given for Helmerich & Payne Inc.(HP), Nabors Industries Ltd.(NBR) Patterson-UTI Energy(PTEN) & ProPetro Holding Corp.(PUMP).
Over this earnings season, oil majors like Exxon Mobil Corporation(XOM) and Chevron Corporation(CVX) are expected to show huge bottom line growth with analysts forecasting an EPS of $3.18(XOM)-55.1% Y/Y increase & $4.27(CVX)-66.8% Y/Y growth respectively while Halliburton Company is likely to report an EPS of $0.67 vs last year’s quarter at $0.36 & Hess Corporation(HES) is expected to report an EPS of $1.71-100% Y/Y growth although Jefferies Financial Group analyst L Byrne believes it could be higher at $1.75 but even that would mean a downgrade from his previous estimate of $2.15
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