Oil Companies Have Crushed Earnings. Why Their Stocks Have Been Falling.

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Energy company earnings have been impressive. Their stock returns after reporting have not. That’s not a reason to worry about oil stocks, however.

Oil stock financial results have been, well, incredible. S&P 500 energy companies, in aggregate, have posted first-quarter sales growth of 53% year-over-year as of Wednesday morning, according to

Credit Suisse, while earnings per share have risen 251%–and topped beaten analysts estimates by 15%. But that’s not driving these stocks higher anymore. Energy companies beating on both sales and EPS have dropped an average of 2.2%, Credit Suisse explains. 

The reason is that energy stocks had already been flying high before earnings as analysts rushed to price higher oil prices into their models. The price of crude has surged 35% this year thanks to generally strong economic demand and supply shortages resulting from the Russia-Ukraine war. As prices rose, analysts revised estimates higher, and that was one more reason for oil stocks to keep moving higher, and the Energy Select Sector SPDR exchange-traded fund (XLE) gained 39% for the year through April 11, the day before earnings season kicked into high gear. But it also means that a lot of that good news—at least for oil-related companies—was already reflected in the stock prices. As a result, the beats had to be even bigger to keep the stocks moving higher.

Consider the case of

Halliburton (HAL). The $31 billion market capitalization oil-services provider reported a first-quarter profit of $0.35 a share, beating estimates of $0.34 a share, on sales of $4.28 billion, above expectations for $4.2 billion. But the stock fell 0.8% on April 19, the trading day after its earnings report. The stock had gained 82% heading into earnings, while calendar-year earnings estimates had risen more than 8%, according to FactSet. Similarly,

Schlumberger (SLB) posted a first-quarter profit of $0.34 a share, beating estimates of $0.33 a share, on sales of $5.96 billion, above expectations for $5.91 billion. While the stock rose on April 22, the trading day after earnings, it’s down just over 2% overall, since reporting after gaining 36% for the year heading into its earnings release.

Pipeline company

Kinder Morgan (KMI) had similar issues. It reported a first-quarter profit of $0.32 a share, beating estimates of $0.29 a share, on sales of $4.29 billion, above expectations for $3.75 billion. The stock was essentially flat on April 21, the trading day after earnings, and is now down more than 6% since it announced results. The stock had gained 25%, heading into the report.

The good news is that oil stocks have been falling, with the Energy Select Sector SPDR down 7.5% since April 18. That’s a better setup for oil majors like

Chevron (CVX) and

Exxon Mobil (XOM), which report on April 29, and

BP (BP), which reports on May 3.

At least it gives them a fighting chance.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com