Oil prices are surging – setting up a potential surge of unexpected profit for a group of energy companies.
There are eight energy stocks in the Standard & Poor’s 500, including Transocean, Devon Energy and giant Exxon Mobil where analysts have boosted what they think the companies will earn in the second-quarter earnings since the price of oil hit rock bottom on March 17, according to a USA TODAY analysis of data from S&P Capital IQ. Only energy companies expected to be profitable during the quarter were included.
And we’re not talking an incremental improvement. Analysts are now expecting 20% higher profit on average from these companies versus forecasts only three months ago. If these analysts are right – there could still be money to be made. Analysts expect shares of seven of the eight stocks to be worth more in 18 months than they are now – by an average of 17%.
Investors have been eagerly awaiting their chance to jump back into oil stocks – crude prices hit bottom, stabilize or even started to recover. That time appears to be here. The price of West Texas Intermediate Crude has surged 38% since hitting the low on March 17, according to data from Bloomberg.
Energy explorer Transocean is the company where analysts have bumped up expectations by the most: 81%. Analysts are now expecting the company to report an adjusted quarterly profit of 44 cents a share, up from the 25 cents a share expected on March 17. Investors are already jumping in to the stock – pushing it up 27% from three months ago – trying to get ahead of what’s looking like a rapidly improving situation.
It’s not just the smaller oil exploration companies where expectations are rising fast. Some of the major oil companies are seen benefiting as well. Analysts expect Exxon Mobil to report adjusted quarterly profit of 98 cents a share during the current quarter, which is nearly 14% higher than what they expected back on March 17. Investors, though, are still cool to this – and the stock has been flat since March 17.
Analysts aren’t just more bullish than they were on energy companies’ second-quarter profits, but on most of their stocks, too. Analysts, for instance, are calling for a 25% jump in shares of refiner Tesoro over the next 18 months. The one exception to bullishness on the stocks is Transocean, where analysts’ 18-month price target is 18% lower than were the stock is now.
It’s important for investors to note that profits are expected to be better than what was expected for the quarter. But that doesn’t mean profit has recovered to levels before oil prices collapsed. Even if Tranocean’s profit comes in 81% above expectations from March – that would still be 73% below year-ago levels.
But a recovery has to start somewhere.