The energy sector late last year and particular the first few months of 2015 saw a collapsing oil that just would not find a bottom, consistent downgrades and negative forward guidance revisions. However, over the past two months, the price of crude has successfully rallied and held around the $60 a barrel range, which has enticed drillers. In fact, last week the Baker Hughes weekly drilling rig figures showed that the rig slowdown is reaching a breaking point. The price of crude has rallied 3% year to date and bullish second quarter revisions to energy sector imply that crude prices could continue to stabilize and move higher.
Energy sector has had largest increase in EPS estimates for Q2 than any other sector
The energy sector leads all other sectors in bullish bottom up earnings per share estimate revisions thus far into the second quarter. Since the start of the second quarter, earnings per share estimates have risen 7.1% from $4.11 to $4.40 for energy. However, the overall market does not appear to be as rosy as energy in the second quarter. In fact, analysts have lowered earnings per share estimates for the S&P 500 by -2.1%, from $29.39 to $28.77. The major argument being made here is the fact that S&P 500 still trades at near high levels, while revisions continue to be in decrease-to-sideways trend. The price of crude oil, on the other hand, has rallied nearly 42% since hitting its 52 week low at $42.40 on March 16, 2015. This means that it is likely that energy could surprise to the upside in the second quarter as commodity prices continue to rally.
Transocean Ltd leads bullish revision changes at 71.7% m/m
Transocean has seen the largest increase in earnings per share revision at 71.7%. As of May 29th, analysts expect Transocean to post Q2 earnings per share of $0.42, compared to $0.24 at the end of March. The next largest were QEP Resources, Inc. at 42.8% (-$0.14 from -$0.25), Apache Corporation with 39.3% (-$0.36 from -$0.59), Cabot Oil & Gas Corporation with 28.2% ($0.04 from $0.03), etc.
Overall, energy is making a comeback thanks to a rallying crude and slowdown in rig shutdowns. Analysts are beginning to recognize energy’s potential rebound may be here to stay. While there is still plenty of more time in the second quarter, uncertainty still does lurk for oil, as traders wrestle with bearish data. However, US energy companies are taking advantage of higher oil prices while they can and that is sure to increase the bottom line to some extent.
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