Thanks to higher oil prices, a raft of earnings reports from U.S. oil giants suggest a strong rebound in the energy sector after more than three years of struggling.
In particular, two U.S. supermajor oil producers, Exxon Mobil (XOM – Free Report) and Chevron (CVX – Free Report) , came up with solid third-quarter results beating our estimates on both the top and bottom lines. The improving trend is likely to continue with oil prices trading above the $50 mark.
Earnings in Focus
The largest U.S. oil company, Exxon Mobil, reported earnings per share of 93 cents, trumping the Zacks Consensus Estimate of 89 cents and improving from the year-ago earnings of 63 cents. Revenues rose 12.8% year over year to $66.16 billion and edged past our $63.51 billion estimate. The stock was up 0.3% following the earnings announcement.
Earnings per share of $1.03 at Chevron, which trails Exxon Mobil, also outpaced the Zacks Consensus Estimate by four cents and increased from the year-ago earnings of 68 cents. Revenues climbed 20.1% year over year to $36.2 billion and were well above our estimate of $33.671 billion. Despite the strong results, shares of CVX are down 4.1% since its earnings release.
While these stocks belong to a solid Zacks Industry Rank in the top 32%, Exxon looks like a more compelling choice given its Zacks Rank #2 (Buy) versus a Zacks Rank #3 (Hold) for Chevron.
ETFs in Focus
Given the earnings announcement, ETFs having the largest allocation to these energy behemoths are in focus. These funds have a Zacks ETF Rank #4 (Sell) or #5 (Strong Sell) with a High risk outlook.
iShares U.S. Energy ETF (IYE – Free Report)
This ETF tracks the Dow Jones U.S. Oil & Gas Index, giving investors exposure to the broad energy space. It holds 67 stocks in its basket with AUM of $1.1 billion and average daily volume of 461,000 shares. The product charges 44 bps in fees per year from investors. Exxon Mobil and Chevron occupy the top two positions in the basket taking the bigger chunk of assets at 24.8% and 15%, respectively. From a sector perspective, integrated oil & gas makes up for 43.2% share while oil exploration & production, and oil equipment & services round off the next two spots with a double-digit exposure each. The ETF is up 0.5% on the day.