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Despite Falling Oil Prices & EPS Estimates, Energy Sector Has Highest Buy Ratings % in S&P 500

Earnings

By John Butters  |  March 16, 2020

As of March 13, the Energy sector has the highest percentage of Buy ratings on companies of all 11 sectors in the S&P 500 at 65%. However, analysts have been optimistic in terms of their ratings on companies in the Energy sector for some time. In fact, this sector has had the highest percentage of Buy ratings of all 11 sectors at each month end going back to September 2018. Over this period, the average (month-end) percentage of Buy ratings for the Energy sector has been 65%, compared to 52% for the entire S&P 500.  Given the high number of Buy ratings analysts have issued for companies in this sector over the past 18 months, has the Energy sector outperformed other sectors in terms of price over this time?

S&P 500 Percentage of Buy Ratings

The answer is no. Since September 30, 2018, the Energy sector has actually seen the largest price decrease of all 11 sectors at -60.5% (to $221.69 from $560.91). Over this same time frame, the S&P 500 has seen a price decrease of -14.9% (to 2480.64 from 2913.98).

S&P 500 Energy Buy Ratings % vs Price

The sharp decline in the price for the Energy sector can be attributed to both falling earnings expectations and a decrease in the price of oil. Since September 30, 2018, the Energy sector has also seen the largest decline of all 11 sectors in its (rolling) forward 12-month EPS estimate at -37.0% (to $21.04 from $33.39). Over this same period, the forward 12-month EPS estimate for the S&P 500 has increased by 2.1%. Falling oil prices were a significant contributor to this decrease in expected future earnings, as the price of oil (WTI) has declined by 57.0% (to $31.50 from $73.25) since September 30, 2018.

S&P 500 Energy Buy Ratings % vs Forward 12 Month EPS

S&P 500 Energy Buy Ratings % vs Oil Price

Given the sharp decline in the price of oil over the past week and continuing downward revisions to EPS estimates for companies in this sector, will analysts maintain their Buy ratings for companies in the Energy sector going forward? Since February 29, the number of Buy ratings on companies in the Energy sector has declined by 21, which has caused the percentage of Buy ratings in this sector to fall to 65% on March 13 from 67% on February 29. However, even at 65%, the Energy sector still has the highest percentage of Buy ratings of all 11 sectors.

Thus, analysts will need to become more pessimistic in their ratings for the Energy sector or more optimistic in their ratings for other sectors for the Energy sector to fall from the top spot in terms of Buy ratings for the S&P 500.

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John Butters

Vice President, Senior Earnings Analyst, Investor Relations

Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His weekly research report, “Earnings Insight,” provides analysis and commentary on trends in corporate earnings data for the S&P 500 including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).

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