Should You Buy Energy ETFs Ahead of Q3 Earnings
The energy sector has been hit hard by lower oil prices and the coronavirus pandemic, which has curtailed the demand for oil. The companies in the sector are struggling to raise new capital to restructure heavy debts (read: ETF Strategies to Play as the Coronavirus Outbreak Aggravates).
The ultra-popular ETFs Energy Select Sector SPDR XLE, Vanguard Energy ETF VDE, iShares U.S. Energy ETF IYE and Fidelity MSCI Energy Index ETF FENY declined nearly 23% each over the past three months. The downtrend is likely to continue given that the sector is expected to report an earnings decline of 113% and a revenue decline of 31.2%. In fact, energy is the second-weakest sector this earnings season, trailing transportation.
Let’s delve into the earnings picture of two oil biggies, Exxon Mobil XOM and Chevron CVX, which dominate the abovementioned funds’ portfolio and have the power to move the funds up or down in the coming days. Both firms are slated to release their earnings before the market opens on Oct 30, and collectively make up for 46.5% of XLE, 45.6% of IYE, 43.3% of FENY and 42.6% of VDE (see: all the Energy ETFs here).
According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
What’s in the Cards?
Exxon Mobil has a Zacks Rank #4 (Sell) and an Earnings ESP of -4.51%. The company witnessed positive earnings estimate revision of a penny over the past seven days for the to-be-reported quarter. The stock delivered an average earnings surprise of 303.3% for the last four quarters. However, the Zacks Consensus Estimate indicates an earnings decline of 139.7% from the year-ago quarter reported figure. Exxon Mobil has a VGM Score of D.
Chevron has a Zacks Rank #4 and an Earnings ESP of 0.00%. It has witnessed upward earnings estimate revision of a couple of cents over the past seven days. The company delivered an average earnings surprise of 10.03% in the last four quarters. However, the Zacks Consensus Estimate for the company’s earnings indicates a decline of 113.2% from the year-ago quarter reported figure. The stock has a VGM Score of D (read: Energy ETFs Set to Soar as ConocoPhillips Acquires Concho).
Conclusion
The duo saw positive earnings estimate revisions before the earnings. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. Although all the four ETFs have a Zacks ETF Rank #4 or 5 (Strong Sell), suggesting some pain in the coming weeks, these have the ability to withstand the shocks from any of the major components in their holdings.
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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Chevron Corporation (CVX) : Free Stock Analysis Report
Energy Select Sector SPDR ETF (XLE): ETF Research Reports
iShares U.S. Energy ETF (IYE): ETF Research Reports
Fidelity MSCI Energy Index ETF (FENY): ETF Research Reports
Vanguard Energy ETF (VDE): ETF Research Reports
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