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Q2 Earnings Estimates Perk Up In This Sector

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Q2 Earnings Estimates Perk Up In This Sector

This week, nearly 15 percent of the components in the ISE-Revere Natural Gas Index report earnings while 24 percent of the S&P Oil & Gas Exploration & Production Select Industry Index does the same thing.

After this week,energy earnings season is all but over, prompting investors to focus on the sector's prospects for second-quarter results.

What Happened

The Energy Select Sector SPDR (NYSE: XLE), the largest energy exchange traded fund by assets, is lower by almost 3 percent over the past week and with oil entering its seasonally weak period, some investors may be getting pensive about the energy sector's near-term prospects.

Over the near term, energy investors should focus on second-quarter earnings revisions for the S&P 500 and the energy sector itself.

“During the month of April, analysts lowered earnings estimates for companies in the S&P 500 for the second quarter,” said FactSet in a recent note. “The Q2 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for all the companies in the index) dropped by 1.0% (to $41.04 from $41.45) during this period.”

Why It's Important

When it comes to cap-weighted energy ETFs, such as XLE, the earnings estimates and reports investors need to focus come from Dow components Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX). XLE allocates over 42 percent of its combined weight to Exxon and Chevron, the two largest U.S. oil companies.

“At the sector level, eight sectors recorded a decline in their bottom-up EPS estimate during the first month of the quarter, led by the Industrials (-6.2%) sector,” said FactSet.

Both Exxon and Chevron traded lower last month, but investors appeared more enthusiastic about Chevron's first-quarter results than Exxon's.

“On the other hand, three sectors recorded an increase in their bottom-up EPS estimate during the first month of the quarter, led by the Energy (+11.1%) sector,” according to FactSet. “Within the Energy sector, Chevron was a substantial contributor to the increase in earnings over this period.”

What's Next

A source of near-term concern is that major energy stocks slumped last month while oil prices rose. Over the latter stages of the second quarter, energy investors may require more than just bullish commentary from Chevron to reengage with the sector.

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