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 The third-quarter earnings picture for energy looks grim. Profit
growth expectations for S&P 500 energy companies have fallen more
than any other sector - from a forecast of 13.8 percent on July 1 to
the current 1.8 percent, Thomson Reuters data showed.
Energy shares dropped 9.2 percent in the third quarter, and the
sector <.SPNY> is on track for a decline of 3.6 percent for 2014,
the weakest performance of any S&P 500 sector.
The decline has followed a sharp drop in oil prices, dragged down by
weakening global demand and a rising dollar. With various names due
to report next week, including Exxon Mobil <XOM.N>, Chevron <CVX.N>,
ConocoPhillips <COP.N> and National Oilwell Varco <NOV.N>, there are
hopes that executives will suggest that the fall in oil and share
prices has overstated the outlook for these names.
"It isn't just about these particular companies. What they have to
say is an important factor for the entire global demand story," said
Quincy Krosby, market strategist at Prudential Financial, based in
Newark, New Jersey.
"All the market has been looking for is less bad news."
The energy sector over the last 20 weeks has spiraled from being the
market leader to now ranking as its most distant laggard, according
to a Relative Rotation Graph study, which analyzes the relative
performance of the constituents of an index.
The S&P energy sector up about 6 percent from Oct. 15, while the S&P
500 is up 5.5 percent from its Oct. 15 low and the benchmark index
on Friday posted its best weekly gain since early January 2013.
Some analysts expect demand from North American energy and
construction industries to boost performance for some in the sector
going forward, even with peaks in activity in North Dakota and other
areas.
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And with profit estimates down for energy, its price-to-earnings
multiple is among the lowest for S&P 500 sectors, at 14.3 times
estimates earnings, Thomson Reuters data showed.
"Sure these oil companies may have some price pressure... but longer
term, many of them are going to be just fine," said Robert Lutts,
chief investment officer at Cabot Money Management in Salem,
Massachusetts.
Still, estimates for the fourth quarter and 2015 so far show an even
bigger decline in energy's profit outlook.
S&P 500 energy earnings now are expected to decline 4.3 percent in
the fourth quarter, which is down from a July 1 forecast for 10.4
percent growth, Thomson Reuters data showed.
For 2015, profit growth for the sector is estimated at just 1.8
percent, the weakest of any sector. That compares with a forecast of
11.1 percent growth for the entire S&P 500, Thomson Reuters data
showed.
(Reporting by Caroline Valetkevitch; Editing by Grant McCool)
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