The S&P 500 Energy sector is positioned for a remarkable performance in the third quarter, with earnings expected to increase by 114% compared to the same period last year. This anticipated growth is the highest among the 11 sectors in the index, underscoring the sector's strong recovery and resilience1.
One of the primary drivers of this optimistic outlook is the rise in oil prices. Over the past year, the average price of crude oil has surged by 32%, reaching $85.68 per barrel. This significant increase has led to the largest upward revision in earnings estimates within the sector since the beginning of the quarter, with projected earnings climbing 19.4% to $56.1 billion2.
The rise in oil prices can be attributed to several factors, including geopolitical tensions, supply chain disruptions, and increased demand as economies recover from the pandemic. These elements have collectively contributed to tighter supply and higher prices, benefiting energy companies. As a result, the sector's share prices have risen by 18.7% since June 30, reflecting the market's confidence in improving earnings expectations.
At the company level, several major players have experienced notable upward revisions in their earnings estimates. Marathon Petroleum (NYSE:MPC), Valero Energy (NYSE:VLO), Phillips 66 (NYSE:PSX), and Exxon Mobil (NYSE:XOM) are among the companies that have seen significant improvements, making them key contributors to the sector's positive outlook. These companies are involved in various aspects of the energy industry, from refining and marketing to exploration and production, allowing them to capitalize on the favorable market conditions.
In addition to earnings growth, revenue growth in the energy sector is also expected to remain robust, with a projected increase of 21.4%. This growth rate is the second-highest among S&P 500 sectors, highlighting the sector's strong performance. All five sub-industries within the energy sector are anticipated to report year-over-year revenue growth, with the refining and marketing sub-industry leading the way with an expected 431% increase in earnings3.
The refining and marketing sub-industry's impressive growth can be attributed to increased refining margins and higher demand for refined products. As economies continue to recover and mobility increases, the demand for gasoline, diesel, and jet fuel has risen, boosting the profitability of refining operations.
Between July and the end of September, the S&P 500 energy sector (NYSEARCA:XLE) advanced by 16.5%, while the broader S&P 500 index saw a more modest gain of just over 2%. This performance reflects the energy sector's ability to outperform the broader market, driven by strong fundamentals and favorable market conditions.
Top and Bottom Quantitative Picks in Large-Cap Energy Stocks
As the earnings season approaches, a quantitative analysis of large-cap energy stocks reveals that the highest-rated stocks are primarily driven by growth, momentum, and positive earnings revisions, rather than valuation support. In contrast, stocks with the lowest ratings show significant declines in revisions and momentum, particularly in segments linked to construction and clean energy.
Highest Rated Stocks
- PBF Energy (NYSE:PBF) – Quant score: 4.99
- Marathon Petroleum (NYSE:MPC) – Quant score: 4.99
- Valero Energy (NYSE:VLO) – Quant score: 4.98
- Okeanis Eco Tankers (NYSE:ECO) – Quant score: 4.98
- Petróleo Brasileiro S.A. - Petrobras (NYSE:PBR) – Quant score: 4.97
Lowest Rated Stocks
- Energy Fuels (NYSE:UUUU) – Quant rating: Strong Sell 1.22
- Uranium Energy (NYSE:UEC) – Quant rating: Strong Sell 1.41
- Centrus Energy (NYSE:LEU) – Quant rating: Strong Sell 1.41
- Comstock Resources (NYSE:CRK) – Quant rating: Sell 1.93
- Peabody Energy (NYSE:BTU) – Quant rating: Sell 2.24
Seeking Alpha's Quant Ratings system evaluates stocks based on their relative performance across key quantitative metrics. It focuses on identifying stocks with the strongest combination of value, growth, profitability, EPS revisions, and price momentum compared to their sector peers4. This system provides investors with a data-driven approach to identify potential opportunities and risks within the energy sector.
For investors interested in broader energy market exposure, energy-focused ETFs such as NYSEARCA:XLE, NYSEARCA:AMLP, NYSEARCA:VDE, NYSEARCA:XOP, NYSEARCA:OIH, and NYSEARCA:IXC offer diversified options. These ETFs provide exposure to a wide range of energy companies, allowing investors to benefit from the sector's overall performance while mitigating individual stock risks.
Footnotes:
- The S&P 500 Energy sector's projected earnings growth is the highest among all sectors. Source.
- Oil prices have increased by 32% year-over-year, contributing to earnings estimate revisions. Source.
- The refining and marketing sub-industry is expected to lead earnings growth with a 431% increase. Source.
- Seeking Alpha's Quant Ratings system evaluates stocks using key quantitative metrics. Source.
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