1.18.15: An Update on Energy Sector Revisions

The change in expected earnings growth for the Energy sector has been brutal.

FCEnergyRtofChange

Readers can quickly see how the q4 ’15 compare gets much easier given the drop in crude didn’t start until Sept ’14.

For the full year 2015, as of Friday, January 16th, 2015, Energy sector earnings growth is expected to decline 35%, thus if we assume Energy is roughly 10% of the SP 500 (either earnings weight or market cap, take your pick), we can thus guesstimate that the drag on the SP 500 full year estimated earnings growth by the Energy sector is roughly 3.5%.

Here is how the individual names rank by earnings weight in the Energy sector (per Thomson Reuters):

  • Exxon Mobil (XOM) = 25%
  • Chevron (CVX) = 17%
  • Schlumberger (SLB) = 7%
  • Conoco Phillips (COP) = 5.49%
  • Occidental (OXY) = 4.5%

The point is the top 5 names account for over half the sector’s earnings weight of the roughly 21 – 22 names in the Sp 500 Energy sector. Of that Exxon and Chevron are over 40%.

If readers dont want to try and pick the bottom for the Energy sector, (and I suggest you don’t), you might want to stick with these names in terms of a longer-term buy-and-hold strategy.

We have no Energy positions as of yet for clients, but the action in Schlumberger (SLB) on Friday was promising. The stock regained its uptrend line off the ’09 market low, after Thursday night’s earnings release, and on heavier volume too.

As of Friday, January 16th, 2015, the full-year 2015 expected earnings growth for the SP 500 was forecast at +6.6%.

“Ex-Energy” expect 10% for 2015 SP 500 earnings growth (for now).

Tomorrow, I’ll look at the Financial sector.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

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