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Oil and gas companies have had two years of explosive growth, but this earnings season could be the start of their return to earth.
Wall Street analysts say Big Oil has passed its peak, but the ride down will be a slow one – these companies will reap remarkably large profits for some time to come.
What is going on: The story of 2022 (and to a lesser extent 2021) was energy. Brutally high oil and gas prices were the talk of the town and one of the biggest contributors to skyrocketing inflation. That was bad news for motorists, but ultimately good for the energy sector, as oil prices and energy supplies are closely linked.
As markets came under pressure from economic uncertainty, geopolitical chaos, high inflation and an aggressive Fed, the energy sector boomed. The S&P ended 2022 down nearly 20%, while the energy sector grew about 60%. No other sector gained even 5% last year.
But analysts say U.S. oil companies can’t keep winning for much longer.
“While 2023 should remain a solid year for integrated oils, there is less room than we envisioned a few months ago given the correction in oil prices and the halving of European gas prices,” analysts from HSBC Global Research wrote in a statement. note.
Bank of America estimates that earnings for oil and gas producers will be 11% lower in the fourth quarter than in the third quarter.
“In our view, upcoming earnings for U.S. oils will be one of the most significant in several years,” Doug Leggate, a Bank of America research analyst, wrote in a recent note. “It is now clear that the best quarter for many US oils is over.”
Big names have already reported misses. Chevron (CVX) reported $7.9 billion in fourth-quarter profit on Friday. That was lower than Q3 earnings and below Wall Street expectations, even as the company posted record full-year earnings of $36.5 billion.
Big profits for investors: Oil stockholders are still sleeping soundly at night. Exxon Mobil (XOM), Chevron, BP (BP), Shell (RDSA) and TotalEnergies are expected to report combined mega profits of $190 billion by 2022, according to Refinitiv estimates.
They are also widely expected to use these mega-profits to reward their shareholders with dividends and buybacks. Chevron announced last week that it plans to buy $75 billion of its own stock and raise its quarterly dividend.
Those buybacks could keep stock prices high for a while. “We think buyback spending is likely to be the safety valve for cash use as fundamentals begin to deteriorate,” Stewart Glickman, deputy research director at CFRA, wrote in a recent note.
What’s next: A key risk for the energy sector is the possibility of a deep recession that could cause “oil demand to plunge into a ditch,” Glickman wrote. “We’ve seen previous cases where demand bottomed out and took prices with it (see 2009 and again in 2020), so it’s not out of the question,” he said.
Exxon reports today, Shell reports Thursday and BP and TotalEnergies report next week. Analysts expect misses and some negative forward guidance.
Oh how the tide has turned on Wall Street.
The communications sector, with its many hard-hit technology and media companies, was the worst-performing market group last year, with a drop of as much as 40% in 2022. But time changes everything. It is currently the best performing sector so far in 2023 and is up nearly 10% according to data from S&P Global Market Intelligence.
DailyExpertNews owner Warner Bros. Discovery, which plummeted nearly 60% last year, is up more than 50% so far in 2023 and is the best performer in the S&P 500, reports my colleague Paul R. La Monica.
Several other media companies, old and new, have also seen an uptick this month. CBS owner Paramount is up 35%. Disney (DIS) is up about 25%. Netflix (NFLX) has gained more than 20%. (So much for the death of streaming media.) Shares of Facebook and Instagram owner Meta Platforms are also up more than 20%.
Consumer durables, including many retailers and auto companies, have also made a stunning recovery after falling last year. The sector performed the second worst in 2022 with a loss of about 38%.
Investors appear to be hoping that the Fed will continue to scale back the size of its rate hikes and may even pause later this year. There is a growing sense that the economy could be heading for a so-called soft landing: a slowdown but not a full-blown recession.
That hope has boosted other consumer stocks. Amazon (AMZN) is up about 20% this year. Owners of cruise lines Carnival, Royal Caribbea (RCL)n and Norwegian (NCLH) are among the best performing companies in the S&P 500. So are stocks of casino companies Caesars (CZR), Wynn, Las Vegas Sands (LVS) and MGM ( MGM). .
TikTok CEO Shou Zi Chew will testify at an upcoming hearing before the House Energy and Commerce Committee, a committee spokesperson confirmed to DailyExpertNews on Monday.
Chew will be the sole witness at the hearing, scheduled for March 23. He is expected to testify about TikTok’s privacy and data security practices, its impact on young users, and its “relationship with the Chinese Communist Party,” my colleague Brian Fung reports. .
The high-profile hearing underscores the growing political risk facing TikTok as negotiations with the US government over a national security agreement continue.
US officials have expressed concern that China could use its laws to pressure TikTok or its parent company, ByteDance, into handing over US user data that could be used for intelligence or disinformation purposes. Those concerns have prompted the US government to ban TikTok from official devices, and more than half of US states have taken similar action, according to an analysis by DailyExpertNews.