The energy sector is eyeing the strongest revenue growth of the 11 S&P 500 sectors in 2022.
While EPS comparisons are less meaningful given the leverage in the industry, looking at the “expected” revenue growth rates for energy is more meaningful from an analytical point of view.
Here is the comparison of ’21 and what ’22 looks like in terms of actual and expected revenue growth rates for the energy sector:
Scheduled for ’22:
- Q4 ’22: +27% revenue growth as of 04/29/22 versus 6% as of April 1, 22;
- Q3 ’22: +65% revenue growth as of 04/29/22 versus 41% as of April 1, 22;
- Q2 ’22: +163% revenue growth as of 04/29/22 versus 124.6% as of April 1, 22;
- Q1 ’22: +253.9% revenue growth as of 04/29/22 versus 233.5% as of April 1, 22;
Actual for ’21:
- Q4 ’21: +91% real revenue growth;
- Q3 ’21: +75.7% real revenue growth;
- Q2 ’21: +117.3% real revenue growth;
- Q1 ’21: +3% real revenue growth;
In 2020, according to quarterly IBES data from Refinitiv, Energy “averaged” a 34% decline in quarterly revenue in calendar year 2020.
Summary/conclusion: The only bright spot for energy bulls is the very positive revisions to expected quarterly energy sector revenue growth already occurring in 2022, although year-over-year comparisons are likely to flatten. harden for the remainder of calendar year 2022.
For energy bears or agnostics, comparisons become more difficult as we move into 2022.
Last Friday, 04/29/22, energy’s percentage of the S&P 500 market capitalization was only 4.1%, despite the numbers above, which is not very significant for the index as a whole.
Not owning energy has been this blog’s best trade for the past decade – that is 2010 to 2019 – and while it’s been a great trade since early 2021, even though I had bought energy for customers in 2020, it probably would have been sold a long time ago.
Frankly, for customers, I missed a good operation last year, although the energy still can’t be owned here. What kept me out of the industry for customers after 2008 was an International Energy Agency (IEA) report that noted that half of US crude oil demand comes from Gasoline distillation, hence the number of Teslas popping up in Lincoln Park just north of downtown Chicago the past decade seemed like a good reason to avoid the area. Looking back, it was a job where I was probably right for the wrong reasons, but the electric vehicle tsunami is going to drive down gas mileage in America.
Past performance is not indicative of future results. Energy bulls seem to have a strong case on the supply side, but it seems that the various global players have always struggled to stay disciplined (i.e. not cheat). The financial sector attracts me more than the energy sector here, simply because I know the sector better and am more comfortable with what is bought for clients. Energy and the financial sector are considered value sectors.
Chevron (CVX) is heading for its second straight day of 3% gains after Berkshire and Mr. Buffett announced a much larger stake in the integrated oil giant at Buffett-fest in Omaha this weekend. The Occidental (OXY) and Chevron trades are a clear bet on the energy sector, so take that as a very positive sign.
Thanks for reading.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.