As the third quarter of 2024 earnings results roll in, oil and energy companies are revealing a mixed bag of outcomes. Despite declining commodity prices, which many analysts thought would weigh heavily on the industry, the results have been better than expected. Several companies have surpassed earnings forecasts, bringing a more optimistic perspective to the sector’s outlook than anticipated. Below, we delve into the current landscape and highlight three stocks — ProPetro Holding Corp. PUMP, Core Laboratories N.V. CLB and Oceaneering International OII — that may offer attractive opportunities in the post-earnings period.
Impacts of Commodity Prices on Energy Firms’ Earnings
The relationship between energy companies’ earnings and commodity prices is intertwined. In the third quarter of 2024, oil prices experienced a noticeable decline from the prior-year period. According to the U.S. Energy Information Administration, the average monthly price of West Texas Intermediate crude in July, August and September 2024 was $81.80, $76.68 and $70.24 per barrel, respectively. Last year, prices averaged $76.07 in July, $81.39 in August and $89.43 in September. These figures reflect declines from the previous year (except for July).
Natural gas prices have faced even more pressure. Throughout the third quarter, the U.S. Henry Hub average natural gas prices hovered at $2.07 per MMBtu in July, $1.98 in August and $2.28 in September, down significantly from the corresponding months in the previous year, wherein prices averaged $2.55, $2.58 and $2.64 per MMBtu, respectively.
Role of China’s Economic Slowdown in Oil Price Declines
One of the primary contributors to the recent downturn in oil prices is the economic slowdown in China. As the world’s largest importer of crude oil, China’s economic performance plays a crucial role in shaping global demand. In the third quarter, weak economic indicators such as persistently low inflation and sluggish consumer demand fueled concerns about China’s ability to sustain its oil consumption levels. Despite efforts by the China government to implement stimulus measures, the lack of significant action left global markets on edge, leading to a cautious demand outlook.
Not All Energy Firms are in Trouble
While the environment may seem challenging, some energy firms have demonstrated resilience. The third-quarter 2024 earnings season has seen a notable percentage of companies exceeding analyst expectations, with 48 S&P 500 members reporting a 5.2% year-over-year increase in total earnings alongside a 4.9% rise in revenues. About 81.3% of these firms have beaten EPS estimates, while 72.9% have surpassed revenue projections. These beat percentages are stronger than what has been observed in recent quarters, suggesting opportunities for investors willing to navigate the volatility.
Stocks With Earnings Beat Potential
In this earnings season, identifying stocks with the potential to outperform is crucial for investors looking to capitalize on market movements. While predicting which companies will exceed expectations can be difficult, certain indicators can offer guidance. Our research suggests that a combination of a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), #2 (Buy) or #3 (Hold) significantly increases the likelihood of a positive earnings surprise.
The Earnings ESP is a proprietary metric that measures the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, helping investors identify stocks that are likely to deliver an earnings beat.
Energy Stocks With Potential
Given the current market conditions and earnings dynamics, ProPetro Holding, Core Laboratories and Oceaneering have emerged as strong candidates for a positive post-earnings reaction. These companies have shown solid operational performances, effective cost control and strategic positioning, making them attractive options for investors looking to benefit from a market rebound.
ProPetro Holding has a Zacks Rank of 3 and an Earnings ESP of +60%. PUMP is an oilfield services provider primarily operating in the Permian Basin of west Texas and New Mexico. The company offers specialized, complementary services and equipment for the exploration and production of oil and gas.
ProPetro Holding beat earnings estimates twice in the last four quarters and missed big in the other two, the negative earnings surprise being 76.4%, on average. PUMP is set to release third-quarter results on Oct. 30.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Core Laboratories is #3 Ranked with an Earnings ESP of +2.63%. This oilfield services company provides reservoir management and production enhancement services to oil and gas companies.
CLB is scheduled to release third-quarter earnings on Oct. 23. It beat the Zacks Consensus Estimate for earnings in two of the last four quarters but missed twice, which resulted in an earnings surprise of 3.5%, on average.
Lastly, Oceaneering International is one of the leading suppliers of offshore equipment and technology solutions to the energy industry.
OII, with an Earnings ESP of +2.27% and a Zacks Rank #3, is scheduled to release third-quarter earnings on Oct. 23. Oceaneering International beat the Zacks Consensus Estimate in the last quarter and missed in the previous three, which resulted in a negative earnings surprise of 13.6%, on average.
Conclusion
The third-quarter 2024 earnings season has presented challenges and opportunities for energy investors. Despite headwinds from lower oil and gas prices, several companies have delivered stronger-than-expected results, reflecting their ability to adapt to the changing market landscape. By focusing on stocks with the potential for positive earnings surprises, investors can position themselves for gains amid the sector's uncertainties. ProPetro Holding, Core Laboratories and Oceaneering International stand out as promising options in this regard, offering a chance to capitalize on the post-earnings momentum.
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