Macroeconomy Worries Means Market Focus Turns to Energy Sector

Author: Gary Ashton

Estimated read time: 4 minutes

Publication date: 25th Jul 2019 11:49 GMT+1

Market participants are growing increasingly worried about the health of the global macroeconomy. The US/Chinese trade dispute runs hot and cold, with threats and counter-threats, taking the world’s stock markets with it. Investors have become so concerned about a global slowdown that they seem to have talked themselves into believing that the US Federal Reserve could cut interest rates by 50 basis points (a move usually implemented in times of crisis) when it meets at the end of July. Toping this all off is rising tension in the Persian Gulf that is contributing to oil price volatility, as Iran makes it known that it is not happy with US economic sanctions.

Energy is a crucial input at the beginning of the supply chain and is a leading indicator for the health of the global economy. As the world’s major energy companies start reporting 2Q results, market participants will be looking to them to get a sense of direction for the global economy.

Big European Oil Names Reporting This Week

European oil majors will report their financial results later this week. France’s Total SA (NYSE: TOT) and Italy’s ENI SpA (NYSE: E) both report 2Q19 earnings on Thursday. Out of the two names, Total seems to be favoured by Wall Street analysts, who expect earnings per share (EPS) of $1.38 in 2Q19. This figure has been revised up 3.76% in the last 90-days and compares favourably to Eni’s 2Q19 estimated earnings figure of $0.63 per share. Analysts have revised down Eni’s expectations by 12.5% in the last 90-days. Using Finscreener.com’s Earnings Rating, Total is presently ranked as a Strong Buy while Eni is ranked a Strong Sell. Eni’s current ranking is a sharp reversal from the Buy ranking published on May 17th and is likely due to negative estimated 2Q earnings revisions in the last three months and a negative earnings surprise of 15.8% in 1Q19 when the company reported earnings per share of $0.64.

US Oil Names Also on Tap in the Next Two Weeks

In the United States, Phillips 66 (NYSE: PSX) reports 2Q19 earnings results on July 26th. Wall Street analysts expect the company to report earnings per share of $2.46 for the quarter, which is down slightly compared to the same quarter last year when the company reported earnings per share of $2.80. The share price is up 18.35% so far in 2019 but has had a volatile six-months. Finscreener.com still shows some potential upside to the stock with a target price of $114.73 per share, or 12.52% upside from the closing price of $101.96 per share on July 19th. The shares also look to be offering good value with a PE Ratio of 8.9x, which is at the lower end of the 5-year range of 6.9x to 35.10x.

ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) both report 2Q19 earnings before the market opens the following week on August 2nd. Analysts are looking for Chevron to report 2Q EPS of $1.87 and have revised expectations up 7.3% in the last 90-days. Analyst expectations for ExxonMobil are more muted with a 2Q EPS of just $0.81, a figure that has been revised lower by 4.35% in the last 90-days. In 1Q19 Exxon missed analysts’ earnings expectations by 23.61% compared to Chevron, who beat expectations by 10.32% in the same quarter. In a previous blog “Which Five Dow 30 Stocks Could Outperform in 2020?”, we identified Exxon as a stock that may outperform in 2020 given its lacklustre 3-year price performance against analyst projected earnings next year.


Disclaimer: Gary Ashton is an experienced financial consultant who writes for Finscreener.com. The observations he makes are his own and are not intended as investment or trading advice.