Energetic Earnings

One corner of the market where there's little doubt of superlative results this earnings season is the energy sector. Oil and gas prices roared higher early this year, and companies that produce and sell the fuel have been the beneficiaries.

Oil prices are off their early March highs after Russia's invasion of Ukraine, but they're still above $100 a barrel. Natural gas prices have followed a similar trajectory, and remain elevated.

S&P 500 energy sector revenues are seen climbing 46% year over year and earnings per share are predicted to soar 239%, per data from Credit Suisse.

Several notable oil and gas firms are scheduled to report in the coming days. French oil major TotalEnergies is releasing results on Thursday, followed by Chevron, Exxon Mobil, and Phillips 66 on Friday. Next week, Marathon Petroleum, ConocoPhillips, Devon Energy, Pioneer Natural Resources, Diamondback Energy, and EOG Resources all report.

Investors will want to know what management teams plan to do with all the excess cash their businesses are generating. Higher dividend payments and share buyback authorizations will likely be looked upon favorably, writes Barron's Avi Salzman. M&A transactions and ramped-up production, less so.

As for investing in energy stocks now, that's a tougher bet than it was at the beginning of the year, when the stocks were almost a third lower than today.

Avi writes:

The question for investors is whether they’re late to the party. Wall Street has mixed feelings. Although the energy sector is up 29% this year, beating every other sector in the market, it has fallen 3% in the past month.

And there are some notable challenges ahead. The biggest oil companies are expected to report a combined $34 billion in impairments related to their holdings in Russia, according to Bloomberg. In addition, investors are increasingly concerned about rising inflation in energy production. Oilfield services companies said last week that they’re hiking their prices, and producers have no choice but to pay up.

Read Avi's energy-sector earnings preview here. And for five oil and gas stocks with particularly strong momentum going into their first-quarter reports, find his latest stock screen here.