Skyrocketing oil prices might sting at the pump. But if you own S&P 500 energy stocks — you're about to be on the receiving end of a profit gusher this year.
Energy companies in the S&P 500, like Occidental Petroleum, Marathon Oil and Exxon Mobil, are seen making $7.7 billion more in collective profit this year than analysts thought just a month ago, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That's a 7% jump in expected profit in just four weeks by the 21 companies in the sector.
If you want to be on the receiving end of inflation, S&P 500 energy is the place to be. Analysts think energy companies' revenue will jump more than 65% this year, says FactSet earnings analyst John Butters. That's nearly 300% faster growth than the 16.5% top-line growth analysts see coming from the S&P 500 in 2022.
And that's only with Nymex light crude oil hitting roughly $120 a barrel — its highest level in more than a decade. Just imagine if Doubleline CEO's prediction of $200-a-barrel oil happens. No wonder Warren Buffett is upping his position in Occidental, the S&P 500 energy company with the fastest-growing profit forecasts for this year. The Energy Select Sector SPDR ETF is up nearly 40% this year. The S&P 500 is down 12.4%.
"Inflationary pressures continue to persist and to broaden out while increasing oil prices are leading to higher gas prices that plague the consumer," said Ladenburg Thalmann Asset Management CEO Philip Blancato. "Oil prices have surpassed the $100 mark."
Get Ready For A Profit Bonanza In S&P 500 Energy
Profit expectations for S&P 500 energy companies are soaring. That's impressive. Analysts think many S&P 500 firms, on the receiving end of inflation, will actually earn less than they thought just weeks ago. And it's not due to dumping Russia.
Analysts actually cut their profit targets on the S&P 500 for the first quarter by 1.1% already, Butters says. "Expected earnings for the S&P 500 for the first quarter
are lower today compared to expectations at the start of the quarter," he said. "The index is expected to report single-digit earnings growth for the first quarter for the first time since Q4 2020."
In contrast, profits are looking better than ever at energy firms. Analysts boosted their profit targets on energy companies for the first quarter by more than any of the 11 S&P 500 sectors. "Rising oil prices are helping to drive the increase in expected earnings for this sector, as the price of oil has increased by 43% since December 31 through March 7 (to $107.67 from $75.21)," Butters said.
Biggest Profit Jumps In Energy
If you're looking for the S&P 500 companies where profit is looking better than ever, check out Occidental. Analysts, in just a month's time, think the oil producer will make nearly 25% more this year than they thought a month ago. What's that in dollars and cents? Nearly $1 billion in extra profit. Investors definitely want a piece of the action. Shares are up 88% just this year.
That's a solid gain from rising oil prices. But it pales next to the nearly $2.6 billion in extra profit Exxon Mobil is seen scoring this year. Just a month ago, analysts thought the oil giant would make $28 billion, or $6.60 a share. But in just weeks, they've upped that nearly 10% to $30.6 billion or $7.21 a share. You won't hear investors complaining much about Exxon Mobil now. Shares are up more than 40% this year.
And then there's Marathon Oil. Analysts bumped up what they think the company will make this year by more than 20% or $314 million. Shares are up nearly 50% as investors factor this new profit bonanza into their models.
But don't assume, though, that you're getting much of this profit gain. If you only own energy stocks through the S&P 500, you might be disappointed. The energy sector is a mere 4.1% of the S&P 500 index. That's the fourth lowest weighting among the 11 S&P 500 sectors.
Keep that in mind next time you're filling up your tank.
"If the disruption in Russian exports continues, oil prices are likely to exceed $150 a barrel, which implies average gasoline prices could hit $6 a gallon with certain markets, such as California, going to as high as $7.50 a gallon," said Jay Hatfield, portfolio manager at ICAP.
Biggest S&P 500 Energy Surges
Analysts boosted 2022 profit forecasts the most for these energy companies
| Company | Symbol | % ch. in expected 2022 EPS from a month ago | Extra gain in profit in 2022* ($ millions) | Stock YTD % ch. |
|---|---|---|---|---|
| Occidental Petroleum | 24.4% | $965.0 | 88.3% | |
| Marathon Oil | 20.1 | $314.0 | 46.7 | |
| EOG Resources | 11.3 | $723.8 | 32.6 | |
| Exxon Mobil | 9.4 | $2,574.0 | 43.5 | |
| Devon Energy | 8.9 | $278.2 | 35.0 | |
| Williams | 7.5 | $193.9 | 26.2 | |
| APA | 7.2 | $9.7 | 43.7 | |
| Chevron | 6.6 | $2,190.7 | 45.3 | |
| Diamondback Energy | 4.7 | $151.4 | 24.7 | |
| ConocoPhillips | 4.5 | $839.6 | 36.9 |
