Goldman Sachs has raised its earnings per share (EPS) estimates for the European oil majors’ third-quarter results, and believes that the stocks will start reversing their underwhelming year-to-date performance when companies report higher Q3 cash flows from a year earlier, thanks to higher oil prices and increased production.
The weak dollar against the euro and the reduction of the oil price estimates since the beginning of this year had prompted oil analysts to reduce their earnings estimates on Europe’s Big Oil by 24 percent.
“Both these negative drivers [the dollar and oil prices] are coming to an end, with stable FX since the beginning of September and 2018 oil price expectations in line with the forward curve for the first time in over 12 months,” according to a Goldman Sachs note dated Thursday, as reported by The Street.
“Our EPS estimates are currently 4% above... consensus expectations for 2018, having been 12% below in February,” Goldman Sachs analysts wrote in the note.
According to the investment bank, European oil majors are expected to report 22-percent yearly growth in cash flows for Q3, on the back of higher production and higher oil prices. This should boost the companies’ stocks that have been underperforming the broader market by 12 percent year to date.
The Q3 figures by Europe’s largest oil companies are also expected to show increased refining margins, due to Hurricane Harvey shutting down U.S. refining capacity. BP is likely to benefit from those higher margins, because it operates large refineries in the U.S. that have not been affected by the storm. Related: How Mexico’s Energy Reform Will Impact The U.S.
France’s Total and Italy’s Eni are Goldman Sachs’ top picks among the European companies, with Shell also rated “buy”. Norway’s Statoil, on the other hand, is a “sell” for Goldman—the only “sell” among the European oil majors—on the back of its exposure to European gas prices under pressure, and possible appreciation of the Norwegian currency, the krone.
Although oil prices are now half what they used to be three years ago, Big Oil is better positioned now than it was when oil prices were sky high, Michele Della Vigna, co-head of European equity research at Goldman Sachs, said earlier this month.
By Tsvetana Paraskova for Oilprice.com
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