Energy ETFs Are Rising As Higher Oil Prices Power Better Earnings (XLE)

Image of oil derricks

From Zacks: The hottest commodity, oil has been on a solid run this year thanks to a tightening oil market and rising global demand.

However, U.S.-China trade tensions are expected to dent the demand for oil. Reports of supply disruption and decline in inventory have added strength to oil price, making the case for energy stocks appealing ahead of Q2 earnings (read: 5 Sector ETFs Most Exposed to Trade Tensions).

As a result, popular ETFs such as Energy Select Sector SPDR (XLE – Free Report) ,Vanguard Energy ETF (VDE – Free Report) , iShares U.S. Energy ETF (IYE – Free Report) and Fidelity MSCI Energy Index ETF (FENY – Free Report) have gained more than 4% each in the past three months. The upside has been supported by strong Q2 earnings expectations. This is especially true as total earnings for the sector are expected to be up 137% from the same period last year on 18.7% higher revenues.

Let’s delve into the earnings picture of two oil biggies, Exxon Mobil (XOM – Free Report) and Chevron (CVX – Free Report) , 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 Jul 27, and collectively make up 39.5% of XLE, 36% of IYE, 34.3% of FENY and 34.6% of VDE (see: all the Energy ETFs here).

According to our surprise prediction methodology, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP is likely to come up with an earnings beat. A Zacks Rank #4 or 5 (Sell rated) stock is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. 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 #3 and an Earnings ESP of +1.29%. The stock saw no earnings estimate revision over the past seven days for the to-be-reported quarter and delivered negative earnings surprise of 5.73% on average over the last four quarters. However, its earnings are expected to grow an impressive 58.97%. The stock has a solid VGM Score of A.

Exxon Mobil Corporation Price, Consensus and EPS Surprise

Exxon Mobil Corporation Price, Consensus and EPS Surprise | Exxon Mobil Corporation Quote

Chevron has a Zacks Rank #3 and an Earnings ESP of +0.06%. It has witnessed strong earnings estimate revision of 4 cents for the to-be reported over the past seven days. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a pretty good indicator for the stock. Additionally, the company is expected to see solid earnings growth of 127.47% year over year for the second quarter. However, it delivered an average negative earnings surprise of 1.30% in the last four quarters. The stock has a VGM Score of A (read: How to Play Oil as a Commodity With ETFs).

Chevron Corporation Price, Consensus and EPS Surprise

Chevron Corporation Price, Consensus and EPS Surprise | Chevron Corporation Quote


Given the possibility of earnings surprises and expected earnings growth, energy ETFs are poised for a surge as Q2 unfolds. Further, the abovementioned ETFs have a Zacks ETF Rank #3.

The Energy Select Sector SPDR ETF (XLE) was unchanged in premarket trading Friday. Year-to-date, XLE has gained 7.26%, versus a 6.60% rise in the benchmark S&P 500 index during the same period.

XLE currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #23 of 38 ETFs in the Energy Equities ETFs category.

This article is brought to you courtesy of Zacks Research.