Energy Sector Revenue Growth Still Seeing Positive Revisions

The energy sector is looking at the strongest revenue growth of all 11 sectors in the SP 500 in 2022.

While EPS compares are less meaningful given the leverage in the sector, watching “expected” revenue growth rates for energy is more meaningful from an analytical perspective.

Here’s the compares from ’21 and how ’22 looks in terms of actual and expected revenue growth rates for the energy sector:

Expected for ’22:

  • Q4 ’22: +27% revenue growth as of 4/29/22 versus 6% as of April 1 ’22;
  • Q3 ’22: +65% revenue growth as of 4/29/22 versus 41% as of April 1 ’22;
  • Q2 ’22: +163% revenue growth as of 4/29/22 versus 124.6% as of April 1 ’22;
  • Q1 ’22: +253.9% revenue growth as of 4/29/22 versus 233.5% as of April 1 ’22;

Actual for ’21:

  • Q4 ’21: +91% actual revenue growth;
  • Q3 ’21: +75.7% actual revenue growth;
  • Q2 ’21: +117.3% actual revenue growth;
  • Q1 ’21: +3% actual revenue growth;

In 2020, according to the quarterly IBES data by Refinitiv, Energy “averaged” a 34% decline in quarterly revenue in calendar 2020.

Summary / conclusion: The one bright spot for energy bulls is the very positive revisions in expected quarterly revenue growth for the energy sector happening already in 2022, even though the year-over-year compares are expected to get tougher for the rest of calendar 2022.

For the energy bears or agnostics, the comparisons get tougher as we move through 2022.

As of last Friday, 4/29/22, Energy’s percentage of the SP 500 market cap was just 4.1%, despite the above-numbers, isn’t very meaningful for the index as a whole.

Not owning energy was this blog’s best trade last decade – i.e. from 2010 to 2019 – and while it’s been a great trade since early 2021, even if I had bought some energy for clients in 2020, it would likely have been sold a long time ago.

Frankly for clients, I’ve missed a good trade in the last year, although energy still can’t be owned here. What kept me out of the sector for clients after 2008 was a report from the International Energy Agency (IEA) that noted half the demand for US crude oil comes from gasoline distillation, thus the number of Tesla’s showing up in Lincoln Park, just north of downtown Chicago last decade seemed like a good reason to avoid the sector. In hindsight, it was a trade where I was probably right for the wrong reasons, but the tsunami that is the electric vehicle is going to dent gasoline consumption in America.

Past performance is no guarantee of future results. The energy bulls seem to have a sound case from the supply side, but it seems as if the various global participants have always struggled staying disciplined (i.e. not cheating). The financial sector is more appealing to me than the energy sector here, simply because I’m more familiar with the sector, and have a higher comfort level in what’s being bought for clients. Both energy and the financial sector are considered value sectors.

Chevron (CVX) is heading for it’s 2nd straight day of 3% gains, after Berkshire and Mr. Buffett announced a much bigger stake in the integrated oil giant at Buffett-fest in Omaha this weekend. The Occidental (OXY)and Chevron trades are a clear bet on the energy sector so take that as a very positive clue.

Thanks for reading.

 

 

 

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