Earnings season kicks off this week with reports due from Weatherford International, Halliburton and BJ Services Company the first out of the gate.
Not surprisingly, the outlook for most oil and gas firms isn’t great, but Pritchard Capital Partners says it is expecting “a ‘V-Shaped’ earnings season” in the oil patch:
Investor skepticism is currently at intense levels for Q2. However, we believe the quarter should be viewed in the context of a transitional market rather than simply focusing on the currently weak fundamental picture. If pessimistic expectations become a self-fulfilling prophesy, stocks could end up pulling back during the first couple of weeks of earnings season, only to rebound toward the end of the period once the worst is behind us.
When all is said and done in about four weeks, we believe more companies will actually exceed expectations than not because the sell-side community has a tendency to err on the side of conservatism when the market’s mood is bearish, and the companies themselves have done much to guide us down as much as possible as well.
Sure, there will be many misfires and some really ugly numbers, but that also spells opportunity for investors.
Forbes echoes many of Pritchard’s concerns that oil field service firms will see limited returns even as oil prices rebound, because of how intertwined they are with the integrated firms.
Other indicators of what may be in store:
• Rowan revealed net income could be down 30% or more in a filing for a debt offering last week.
• But when Lufkin Industries reported on July 15 it missed EPS by a penny, the stock sold off by 3% but closed up 6% the next day, Pritchard notes, as “cooler heads seeming to have prevailed given that the outlook was fairly benign for the rest of the year.”