Can The Rally In Energy ETFs Continue? [Schlumberger Limited., Baker Hughes Incorporated, Halliburton Company]

oil rig spillSweta Killa: The energy sector has been witnessing a solid trend over the past month on intensified geopolitical tensions in Russia. In fact, energy is the best performing sector in the S&P 500 index, rising nearly 4.7% this month against 0.4% decline in the index.

This is because Russia is a major supplier of oil and more penalties on it because of interventions in Ukraine could disrupt global supply, leading to higher oil prices and energy stocks.

Further, Q1 results for 21% of the sector’s total market capitalization reported so far seem impressive with earnings beat ratio of 71.4% and revenue beat ratio of 42.9% amid frigid weather. Strong performances by top oilfield players such as Schlumberger (SLB), Baker Hughes (BHI) and Halliburton (HAL) are fueling growth in the broad sector.

In fact, energy is one of the leading sectors after utilities, medical and business services this earnings season, as per the Zacks Earnings Trends. However, earnings growth of 13.7% is much lower than 22.8% growth in the prior quarter for the same market cap. This is especially true as Europe’s third largest oil company, BP plc (BP) failed to meet our expectations.

BP Earnings in Focus

The British oil giant reported earnings per ADS of $1.05 per share, which missed the Zacks Consensus Estimate of $1.10 and was well below the year-ago earnings of $1.32. Revenues dropped 13.3% to $92.9 billion. The lackluster performance was credited to lower production and weak earnings at refineries (read: 3 Energy ETFs Marching Higher in the Past Week).

Despite disappointing results, the company remained committed to reward shareholders. BP raised its quarterly dividend by 8.3% to 9.75 cents per share, marking the second increase in six months. Additionally, the company plans to divest another $10 billion in assets by 2015; the proceeds will be used to reward shareholders in the form of buybacks.

While weak earnings result speaks unfavorably for the company, the strategy of boosting shareholders return has spread bullishness in its growth story. The shares of BP spiked roughly 3% in yesterday trading on elevated volume.

ETFs in Focus

Given this, most of the ETFs having the largest allocation to this big oil giant are in focus in the coming days. Investors should carefully watch whether BP could continue to maintain strength in these energy ETFs and grab an opportunity wherever it arises:

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