Oil Stocks Rebound Amid Analysts' Mixed Predictions on Prices and Earnings

Strategic Insights -

Oil stocks showed signs of recovery on Wall Street after a sell-off on Monday, as some analysts upgraded their ratings based on the assumption that oil prices have bottomed out and will remain in the mid-teen range for the year. However, not all analysts share this view, predicting that first-quarter earnings will be disappointing for many oil companies due to low oil prices. The integrated oil companies appear to be resilient, but independent producers and domestic integrated companies are likely to see flat to lower earnings.

Key Takeaways:

  • Oil company stocks rebounded on Wall Street after Monday's sell-off, with some analysts upgrading their ratings based on the assumption that oil prices have bottomed out.
  • Analysts predict that oil prices have neared their low point and will gradually recover, with Bernard Picchi of Kidder Peabody & Co. upgrading Amoco Corp., Mobil Corp., and Amerada Hess Corp. to outperform.
  • Michael Young of Smith Barney Shearson Inc. upgraded his rating of Unocal Corp. to outperform and raised his ratings of British Petroleum Co. and Amerada Hess to neutral from underperform.
  • Some analysts believe that the consensus among analysts for full-year earnings are much too high, with Thomas R. Driscoll of Salomon Brothers Inc. predicting that earnings estimates will need to come down as 1994 progresses.
  • Oil prices in the first quarter fell 25% below the year-earlier period, and first-quarter earnings are likely to be disappointing for many companies.
  • Integrated oil companies are proving resilient despite low oil prices, but independent producers and domestic integrated companies can expect to see flat to lower earnings.

Statistics:

  • Oil prices in the first quarter fell 25% below the year-earlier period.
  • First-quarter operating results for major oil companies are predicted to drop 10% or more below last year's results.
  • Bernard Picchi raised his 1994 earnings estimate for Amerada Hess to $1/share from 20*/share.
  • Oil prices are predicted to remain in the mid-teen range for the year, according to some analysts.
  • British Petroleum and Amerada Hess rose more than $2/share on news of the upgrades.

Sources:

  • Bernard Picchi, analyst with Kidder Peabody & Co.
  • Michael Young, analyst with Smith Barney Shearson Inc.
  • Thomas R. Driscoll, analyst with Salomon Brothers Inc.