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Big Oil: Has Street Fairly Assessed Energy Sector Earnings?

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October 29, 2015
Big Oil: Has Street Fairly Assessed Energy Sector Earnings?

Anyone who has eyeballed the oil patch this year knows something about the over-supplied industry’s price troubles. Just how much of that pain has passed through to select producers could show up in Friday pre-bell earnings results from Exxon Mobil (XOM) and Chevron (CVX).

The energy sector’s Q2 performance was weak, to say the least, but analysts reporting to Thomson Reuters are bracing for potentially ugly numbers in Q3, although with potentially improved report details. These analysts peg earnings at $0.89 a share on revenue of $63.75 billion for XOM, which has recently diversified into natural gas. Those results, if realized, will be at a little less than half where they stood at this time last year.

In Q2, the company's refining segment almost doubled its earnings compared with the year prior, which helped offset poor results from its U.S. oil and gas production. Could this segment have helped in Q3?

For CVX, the average industry estimate sits at $0.76 per share on top line sales of $29.76 billion. Compare that to the year-ago quarter when the company earned $2.95 a share on revenue of $54.68 billion.

Rival ConocoPhillips (COP) in its earnings report out Thursday morning reported a wider-than-expected loss of $0.38 per share in Q3 and it cut its 2015 capital expenditure outlook to $10.2 billion from $11 billion to $11.5 billion, and its operating cost outlook to $8.2 billion from $8.9 billion to $9.2 billion.

Defending the Dividend?

Dow Jones Industrials’ components CVX and XOM—two of the biggest among what’s known as the super majors—have been suffering through a 16-month oil-price retreat. But both stocks have rebounded since August (see figure 1 and 2).

Buying and selling in these “Dogs of the Dow” stocks tends to be popular among both retail and institutional investors as a play on oil and energy, and because of historically attractive dividend yields. That’s been especially true in the low-interest rate environment. Can Big Oil continue to deliver dividends? According to the Wall Street Journal, though both XOM and CVX are cutting costs as they manage a cash crunch, “the companies have declared their dividends untouchable.” Let’s see if that holds true.

The short-term options market is pricing in the potential for a 2.5% move in either direction for XOM around its earnings release, and a just under 3% move for CVX, according to the Market Maker Move indicator on TD Ameritrade’s thinkorswim® platform.

Buyers of weekly 80 puts on XOM are notable, accompanied by only a smattering of call volume. On XOM monthlies, buyers of 83 calls are prominent.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price and over a set period of time; the same applies to put options, which represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

XOM-stock-chart

FIGURE 1: PRICED IN?

Exxon Mobil (XOM) shares have slumped better than 13% on a year-over-year basis, but are up nearly 20% since late August. Source: TD Ameritrade's thinkorswim platform. Data source: Dow Jones. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

CVX-stock-chart

FIGURE 2: SIMILAR STORY.

Chevron (CVX) stock has largely traveled down the same path as XOM, only wider. Shares are off more than 23% on a year-over-year basis, but up more than 28% since late August. Source: TD Ameritrade's thinkorswim platform. Data source: Dow Jones. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

LinkedIn: Is Networking Big Business?

LinkedIn (LNKD), the social-media platform largely for professionals (aka the job hunt), reports Q3 earnings results after Thursday’s market close. A glance at other social media earnings reveals a mixed performance; industry analysts expect much the same for LNKD.

Analysts at RBC Capital Markets said in a note this week that LNKD’s robust revenue stream relative to peers, potential margin expansion, and well-oiled management team are worth Wall Street’s attention. But the quarter has been challenging, with its stock backtracking better than 10% after Q2 results were announced on news that display advertising growth was slowing, unexpectedly.

Analysts polled by Thomson Reuters are looking for top line sales to surge some 33% to $77.6 million compared to the year-ago comparable. Earnings, however, are projected to tumble 11.5% to $0.46 a share, which would be the first earnings drop in six quarters.

LNKD stock is up nearly 7% from the same period a year ago but is still down 6% from a mid-summer retreat.

The short-term options market is pricing in the potential for a 10% move in either direction for LNKD around its earnings release, according to the Market Maker Move indicator on TD Ameritrade’s thinkorswim® platform. Its implied volatility is at the 84th percentile.

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