US oil earnings preview: Exxon, Conoco and Chevron

ExxonMobil oil rig
Source: ExxonMobil

It's been a busy week for energy earnings, and the biggest is yet to come. The already reported third-quarter results of oil and refining giants including BP, Valero and Phillips 66 may hold clues about ExxonMobil and ConocoPhillips, both due to report before the bell Thursday, and Chevron, which is expected Friday morning.

What we've seen already

BP disclosed solid numbers Tuesday morning, sending shares up about 6 percent. The British company reported underlying replacement cost profit per American Depositary Share of $1.17, versus $1.58 in third-quarter 2012. Revenue topped expectations at $96.6 billion, easily beating FactSet's estimate of $89.81 billion. BP's dividend came in at 9 cents per ordinary share, a 1 cent gain year-over-year. Analysts also highlighted that BP committed to another $10 billion in asset divestments by the end of 2015, calling it a positive for the stock.

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Barclay analyst Rahim Karim said BP's future challenges include convincing the market that in addition to selling assets to fund share repurchases, it can continue increasing its underlying value and cash flow.

Irene Himona at Société General upgraded BP shares Wednesday, to buy from hold, on the back of the stronger-than-expected report.

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Meanwhile, refiner Valero Energy reported third-quarter earnings of 57 cents a share, versus FactSet estimates of 50 cents. The company also handily beat on the top line, reporting $36.14 billion in revenue, compared with FactSet's projection of $29.16 billion.

Oil and natural gas producer Hess reported that its profit for the period fell 25 percent, coming in at $1.23 a share, compared with $1.64 a share year-over-year. Hess cited a drop in production following asset sales and unrest in Libya.

What to look for next

FactSet estimates that the world's largest publicly traded company, ExxonMobil, will report $1.77 earnings per share on sales of $107.39 billion.

In his most recent note, Raymond James analyst Pavel Molchanov said that given "our bearish outlook on oil prices, Exxon, as the ultimate blue-chip energy stock, represents a safe 'place to hide'—except that, year-to-date, there has been nothing to hide from.

"Combining a risk-hungry equity market with much more robust oil prices than we had originally expected, it is readily apparent that Exxon has been a source of funds as investors rotated into higher-beta, more oil-levered stocks," Molchanov said.

"For the first time in at least three years," since Exxon's acquisition of natural gas and oil producer XTO, "this is now a contrarian stock—hence the opportunity," he added.

The shares are down 1.2 percent this year, versus gains of 17.7 percent for the S&P 500 and 16.6 percent for the S&P energy sector. With that in mind, Raymond James boosted its rating on Exxon to outperform from strong buy. Molchanov has a $98 price target on its shares.

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FactSet forecasts that ConocoPhillips will report $1.46 EPS on revenue of $14.19 billion.

Molchanov maintained an underperform rating on the stock in his most recent note and pointed out that Conoco shares now trade at about 5.3 times his firm's 2014 EBITDA estimate—near the midpoint of range of four to six times.

"We think the valuation is on the high side relative to Conoco's slim visibility on a rebound in growth," he said.

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Investors will hear from Chevron on Friday.

FactSet estimates that the company will report EPS of $2.69 on revenue of about $62.59 billion. In his most recent note, Molchanov reiterated his outperform rating on the stock following Chevron's interim update.

That update, which Chevron provides regularly, confirmed "what we wrote in our sector earnings preview from yesterday about the likelihood of weak [third-quarter] refining results across the board, we are lowering our 3Q estimate to account for Chevron's preannouncement for total EPS to be lower versus 2Q," Molchanov said.

He added that, given Raymond James' forecasts for oil prices, "Chevron remains a defensive name."