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Oil Giants CVX and XOM to Report Earnings Friday Morning

Oil supermajors Chevron (CVX) and ExxonMobil (XOM) report earnings Friday, April 27. Expectations for the two companies remain elevated amid a sustained climb in oil prices.

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Oil supermajors Chevron (CVX) and  ExxonMobil (XOM) report earnings before market open on Friday, Apr. 27. As crude oil prices have continued to climb in 2018, both stocks have gotten a couple of analyst upgrades in recent months.  

Other analysts are still a little more cautious after their Q4 reports, when both CVX and XOM missed estimates by a wide margin. Granted, expectations were high for energy companies as WTI crude had stayed in the $50-$60 range and Brent crude had stayed in the $56-$65 range, for most of the fourth quarter.

Analyst expectations are still high for the two company’s Q1 results. Benchmark crude prices have continued to climb since the start of the year, recently surpassing three-year highs. A combination of OPEC’s continued output restrictions, a weaker U.S. dollar and geopolitical factors have helped support higher crude prices, which analysts expect will provide a significant boost to XOM and CVX’s upstream profits.

Production in the U.S., where shale oil is cheaper to produce than many other global regions, has been kind of the wildcard lately in supply levels. As oil prices have increased, U.S. crude production has continued to ramp up, soaring to a historic high of 10.5 million barrels a day.

Rigs have also been coming online faster in the U.S. than internationally. In the Apr. 20 Baker Hughes rig count, there were 1,013 active U.S. rigs, an increase of 156 compared to last year. In Baker Hughes’ most recent international count in March 2018, there were 972 rigs in operation, an increase of only 29 compared to last year.

Chevron Earnings and Options Trading Activity

For all of 2017, CVX grew its net oil-equivalent production by 5% and the company said it expects full-year 2018 production to grow 4%-7%, driven by faster development in the Permian Basin and its natural gas projects in Australia.

Continued production increases as it ramps up projects in Australia and the Permian, combined with higher energy prices, are expected by analysts to help the company continue to grow revenue and earnings this quarter. For Q1, CVX is expected to report adjusted EPS of $1.45, on revenue of $38.7 billion, according to third-party consensus estimates. In the same quarter last year, the company reported adjusted EPS of $1.14 on revenue of $33.4 billion.

When it last reported, CVX hiked its dividend by four cents, bringing it to a quarterly payment of $1.12, or a yield of about 3.6% based on Wednesday’s close. 

Chevron 2018 stock chart

CHEVRON 2018 STOCK CHART.

The market selloff, combined with a worse-than-expected earnings report, knocked CVX from a 52-week high of $133.88 to $108.02 in a couple of weeks. The stock has recovered a ways from that low and has been bouncing up against the $125 level over the past week. Chart source: thinkorswim® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Around the upcoming earnings release, options traders have priced in about a 2.1% stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform.

In short-term options trading at the next several weekly expirations, there hasn’t been a whole lot of activity that stands out. On the call side, there’s been some volume at the 123, 124 and 125 strike prices, right around where the stock has been trading at the past week. On the put side, most of the activity has been heavier at the 120 strike.  

Looking at the May 18 monthly expiration, calls have been active at the 120 and 125 strikes, while puts have been active at the 119 and 120 strikes. Overall during yesterday’s session, trading was slightly heavier on the put side with a put/call ratio of 1.205.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

ExxonMobil Earnings and Options Trading Activity

XOM’s production declined in Q4 2017, as well as the full year. Oil-equivalent production averaged 4 million barrels per day in Q4, down 2% year-over-year. Excluding the impact of entitlements and divestments, the company's production was flat to last year.

XOM continues to eye the U.S. as an area for increased investment, especially in the Permian basin. Over the course of 2017, XOM doubled its holdings in the Permian through a $5.6 billion acquisition of companies owned by the Bass family. When it last reported, XOM said it plans to invest an additional $35 billion over the next five years in U.S. production and refining.

For Q1, XOM is expected to report adjusted EPS of $1.14 on revenue of $66 billion. In Q1 2017, XOM reported adjusted EPS of $0.95 on revenue of $63.3 billion. The company also just hiked its dividend by 5 cents, bringing its quarterly payment to $0.82 per share, or a yield of just over 4%. 

ExxonMobil 2018 stock chart

EXXONMOBIL 2018 STOCK CHART.

XOM also got hit hard when stocks sold off in early February, dropping from its 2018 high of $89.30, down to $73.90 on Feb. 9. The stock has since bounced back up to the $80 level several times, which it broke through during today’s session. It remains to be seen if it’ll be able to hold there. Chart source: thinkorswim® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Around Friday’s earnings release, options traders have priced in about a 1.8% stock move in either direction, according to the Market Maker Move indicator.

In short-term trading at the next few weekly expirations,  the 80 and 81-strike calls have been more active, while trading has been lighter on the put side and spread out between the 75 and 80 strikes.

At the May 18 monthly expiration, calls have been active at the 79.5 and 80 strike prices, with volume of 2,523 contracts and 6,294 contracts at those strikes, respectively. Again, trading has been lighter on the put side and more concentrated at the 77.5 and 80 strikes.

What’s Coming Up

This was one of the bigger weeks for earnings, but next week there are still quite a few major companies reporting:

  • Pfizer (PFE) and Merck (MRK) both report before the open on Tuesday, May 1
  • Apple (AAPL) reports after the close on Tuesday, May 1
  • Tesla (TSLA) reports after the close on Wednesday, May 2
  • Alibaba (BABA) reports before the open on Friday, May 4

For a look at what else is going on, check out today’s market update.

Good Trading,
JJ
@TDAJJKinahan

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