Here is One Important Energy Metric Being Closely Watched

Expected 2015 Energy sector growth rates are a mess if you’ve been reading this blog regularly, although the stocks aren’t acting nearly as bad as the numbers.

The December ’14 low prints remain intact for a lot of names (but not all) and I suspect, after I started doing the bottoms-up homework, is that a lot of sell-side analysts are simply throwing EPS estimates out there, since they don’t have a good gauge on how this year is going to progress, and for a lot of Energy analysts weren’t around in 1986 when we had another, similar, supply-driven crash in the sector.

My key metric, for what it is worth, is that I’m watching the Q4 ’15 Energy sector earnings growth rate as published by Gregg Harrison and Thomson Reuters, since it is the first quarter that laps the collapse in the crude oil price in 2014.

Here is both the expected growth rate for Energy sector earnings in Q4 ’15 as well as the change over the first quarter, 2015:

3/27/15: -36.7%

2/27/15:-32.9%

1/30/15: -28.2%

1/1/15: -1.8%

The reader can quickly see how Energy earnings deteriorated rapidly in January ’15 for the 4th quarter of ’15 and have since slowed their rate of descent, but still declined about 400 bp’s per month for February and March ’15.

In my opinion, it will be critical to watch the oil service names like Schlumberger and Halliburton, who typically report for the integrated oils like Exxon, Chevron and Conoco, who typically report the last week to ten days of the January, April, July and October.

The expectations in Energy are practically apocalyptic right now with expectations of dividends being reduced, free-cash-flow deficits, ongoing supply increases in the US, and storage capacity evaporating rapidly.

I’m serious – hard to imagine how the news or headline flow gets any worse, and yet a lot of Energy names are not making new lows.

Something will have to give: either the Energy sector growth rates start to firm up and even improve, particularly q4 ’15, or a lot of Energy names have to take out these late ’14 price lows.

Again, this is just my opinion.

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One minor correction or clarification on the Industrial’s post this weekend: the Industrial sector earnings growth estimate was for full-year 2015, and it was the only sector which saw an improvement in its full-year 2015 growth rate over the period from Jan 1 ’15 to March 27th, 2015. Here is the link. The q1 ’15 Industrial sector revisions were negative as is typically the case in the current quarter. I’m trying to get some clarification on what is pulling the 2015 full-year earnings estimates higher for Industrials.

 

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