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U.S. oil companies expected to produce gusher profits -- and big gains for investors

U.S. oil companies expected to produce gusher profits -- and big gains for investors
By Philip van Doorn, MarketWatch
Analysts predict a steady recovery in earnings, even if oil prices don't rise over the next two years
Oil companies, buoyed by the rising price of crude oil, are set for major profit recoveries over the next two years, which means patient investors could finally make money again in the once-beleaguered sector.
The stalling of the oil rally last year sent energy stocks reeling, but what many investors may not realize is that most of the biggest energy companies swung to profits.
Looking ahead, we have put together a list of those expected by analysts to show double-digit increases in earnings for 2018 and 2019.
This chart tells the 2017 tale of woe for investors who were looking to make a quick gain on the rising tide of oil:
If we confine ourselves to 2017, the market showed no faith in oil companies, even though West Texas intermediate crude oil (WTI) eventually rallied to produce a 12.5% gain for the year.
Despite that significant increase for the commodity on which its success is based, the S&P 500 energy sector was down 3.9%, while the broader S&P 500 Index rose 19.4%.
Of 32 companies in the S&P 500 energy sector, 24 posted negative earnings per share for 2016, while one company broke even and only seven booked profits. With three quarters of 2017 earnings data available, analysts polled by FactSet expect 19 of the 25 companies that were unprofitable in 2016 to post for all of 2017.
So there's plenty of good news. The average price of WTI during 2017 was $50.80, and 26 of the 32 S&P 500 energy companies are expected to show profits for the year.
With WTI trading around $62, it may come as a surprise to see that the mean 2018 price target for analysts is $57.40, while the 2019 target is $59.87. Then again, analysts have a way of trailing a volatile market. But even with those price estimates, analysts expect vast improvements in earnings for the industry in 2018 and 2019.
So analysts expect a steady recovery in earnings, even if oil prices don't rise over the next two years. And investors have become more enthusiastic. The S&P 500 energy sector is up 4.5% for 2018 through Jan. 8, second only to the information-technology sector, which is up 4.6%. The broader index is up 2.8%.
For profitable oil companies, price-to-earnings ratios are still high, because industry earnings have been depressed. So if you expect oil prices to remain stable, or to go up over the next few years, your best way to play the rising tide may be to consider stocks of companies that are expected to show the largest increases in earnings.
Here are all 32 S&P 500 energy companies, with estimated EPS for 2017, 2018 and 2019, sorted by how much analysts expect their 2018 EPS to increase:
Name Ticker Consensus EPS estimate - 2017 Consensus EPS estimate - 2018 Consensus EPS estimate - 2019 Expected EPS increase - 2018 Expected EPS increase - 2019
Noble Energy Inc.NBL, -1.29% -$0.01$0.19$0.57N/A200%
National Oilwell Varco Inc.NOV, -1.21% -$0.42$0.31$1.08N/A253%
Apache Corp.APA, -2.98% $0.12$0.86$0.90614%4%
ConocoPhillipsCOP, +0.82% $0.59$1.87$2.37217%27%
Baker Hughes, a GE Co., Class ABHGE, +1.51% $0.36$1.08$1.73196%61%
EOG Resources Inc.EOG, -0.89% $0.87$2.20$3.35152%52%
EQT Corp.EQT, -0.05% $0.92$2.16$3.18135%48%
Pioneer Natural Resources Co.PXD, -0.32% $1.68$3.62$5.39115%49%
Occidental Petroleum Corp.OXY, -0.40% $0.84$1.78$2.12112%19%
Halliburton Co.HAL, -0.34% $1.17$2.16$2.8985%33%
Cabot Oil & Gas Corp.COG, +0.73% $0.52$0.96$1.3785%43%
Schlumberger NVSLB, +0.13% $1.46$2.20$3.0850%40%
Phillips 66PSX, -0.33% $4.45$6.68$7.2950%9%
Range Resources Corp.RRC, +1.25% $0.52$0.73$1.0241%40%
Cimarex Energy Co.XEC, -0.49% $4.50$6.19$7.8238%26%
Devon Energy Corp.DVN, -1.64% $1.81$2.46$2.9136%18%
Concho Resources Inc.CXO, -0.67% $1.90$2.57$3.8036%47%
Valero Energy Corp.VLO, -0.13% $4.93$6.69$7.2336%8%
AndeavorANDV, +0.04% $6.88$9.18$10.5433%15%
Chevron Corp.CVX, -0.54% $4.21$5.59$6.1433%10%
Newfield Exploration Co.NFX, -0.80% $2.13$2.80$3.7332%34%
Williams Cos.WMB, +0.46% $0.72$0.91$1.0227%11%
ONEOK Inc.OKE, -0.26% $1.74$2.21$2.4127%9%
Marathon Petroleum Corp.MPC, -0.56% $3.84$4.63$4.9821%7%
Exxon Mobil Corp.XOM, -0.42% $3.65$4.30$4.5218%5%
Chesapeake Energy Corp.CH, -1.38% $0.72$0.79$0.9110%15%
Kinder Morgan Inc., Class PKMI, +0.42% $0.64$0.70$0.778%11%
TechnipFMC PlcFTI, -1.25% $1.42$1.30$1.50-8%15%
Anadarko Petroleum Corp.APC, +0.23% -$2.22-$0.25$0.43N/AN/A
Helmerich & Payne Inc.HP, -0.53% -$1.27-$0.39$0.16N/AN/A
Hess Corp.HES, -0.06% -$4.47-$3.04-$2.09N/AN/A
Marathon Oil Corp.MRO, +0.45% -$0.37-$0.03$0.07N/AN/A
Source: FactSet