The S&P 500’s Energy sector (NYSEARCA:XLE) had a lackluster performance during the second quarter, as it fell 4.2% in the period.
The sector, which holds a 4.3% weightage on the S&P 500 index and is composed of companies that are into oil production, drilling, refining and transportation, has gained nearly 7% so far this year.
Stocks making up the energy index have secured an average health score of 3.33, according to the latest data from Seeking Alpha’s Quant Rating System. The system awards grades based on quantitative measures, like valuation, earnings growth and recent stock performance. The highest possible score for any individual company is a 5.
Constant geopolitical tensions for the past year leading to higher fuel demand is sparking optimism among investors.
The U.S. Energy Information Administration’s weekly report showed across-the-board draws in crude and refined product inventories, a bullish 12.2M-barrel decline in stockpiles, a 2.2M-barrel drop in gasoline inventories and a 1.5M-barrel drop in distillate supplies.
Looking in to individual companies in the sector, three out of 22 stocks are rated as Buy and above based on their Quant Ratings, 19 stocks are rated Neutral, while none of the stocks are considered Sell or lower.
Chevron (CVX) is leading with the highest Quant score of 4.54, while Baker Hughes Company (BKR) took the second spot, with a score of 4.23. Both companies got a Buy rating, with profitability and growth factors mostly boosting the ratings.
Chevron, in April, posted mixed Q1 results, beating estimates for adjusted earnings while missing on revenues, as higher U.S. production volumes helped offset weak natural gas prices and lower margins on refined product sales. On the other hand, Baker Hughes topped analysts’ estimates.
ConocoPhillips (COP) and Exxon Mobil (XOM), two other companies with a combined market valuation of over $560 billion, have Quant scores of 3.23 and 3.41, respectively.
Diamondback Energy (FANG) and oilfield services company Schlumberger (SLB) have Quant scores of 3.36 and 3.03.
EQT (EQT) has the lowest Quant score of 2.88 in the sector. The company, which lost nearly 4% since the start of the year, has a Quant rating of Hold.
“Global energy demand is expected to increase, with record highs projected for oil and natural gas in 2024 and 2025,” said Seeking Alpha analyst Jennifer Warren, adding that consolidation in the oil and gas industry is a strategic response to energy demand and production in the years ahead.
Another Seeking Alpha analysis also said that XLE should be able to sustain double-digit dividend growth and continue to offer solid overall returns.
Consensus expects EPS for S&P 500 companies to grow 9% in the second quarter, with Energy rising 8.1%, according to brokerage BofA. Meanwhile, a FactSet report stated that the Energy sector is expected to report the fourth-highest (year-over-year) earnings growth rate of all eleven sectors at 12.4%.