Daily Brief: Total Proves Oil Might Not Be The Future For Oil Companies

Daily Brief: Total Proves Oil Might Not Be The Future For Oil Companies

about 3 years ago3 mins

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At least one oil giant is keeping its head in these strange times: Total posted better-than-expected earnings on Tuesday.

What does this mean?

Pandemic-battered oil firms were among the worst-performing companies last quarter, with earnings coming in well below expectations across the board. All, that is, except Total, whose fourth-quarter profit was down 59% compared to the same time last year. That’s not ideal, sure, but it was better than analysts expected – and it’s a notable improvement on the 72% drop of the quarter before.

Total was the only one of Europe's three biggest oil companies to beat estimates

Why should I care?

For markets: Total is leading the way toward a greener future.

When it comes to going green, Total’s leaving its competitors behind: the company’s clean energy spending in the last five years represented a quarter of the world’s biggest oil companies’ low-carbon investments put together. Throw in the company’s resilient earnings, and it might partly explain why Total’s shares have nudged 4% higher than a major index of global oil companies in the past year. And it looks like the company’s doubling down on this secret ingredient: Total said more than 20% of all its investments this year will go toward renewable resources.

Total stock
Source: Google Finance

The bigger picture: Investors are divided on the stuff.

Oil companies’ share prices might be well below pre-pandemic levels, but the slippery elixir itself has seen its price bounce back to its highest level in a year. Still, the jury’s out on where it heads next. Some analysts are arguing it’s risen too high, too quickly, and that it’s got caught up in a broader move toward riskier assets. Others think oil’s price is just going to keep surging as economies reopen, travel gets put back on the agenda, and demand starts to rise again in earnest.

Oil price

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US Companies Have Been Posting Better-Than-Expected Results

Earnings image

It’s about time investors had a nice surprise: US companies have in aggregate reported better-than-expected results so far this earnings season.

What does this mean?

Two-thirds of American companies have now updated investors on how they performed last quarter, and things are looking promising: more firms are beating analysts’ expectations than the historical average, and the beats are bigger too. In fact, the average profits of US companies look set to grow 1.7% compared to the same time the year before – the first time they’ve grown at all since 2019.

Earnings above, in-line, or below estimates

All this might be cause for a small, socially distanced celebration – and not just because analysts were predicting that earnings would drop by 9%. It might also suggest companies are finally seeing the back of the slump, and encouraging analysts – who are now projecting strong earnings growth for the rest of 2021 – to feel more optimistic about the future.

Why should I care?

For markets: Pandemic winners can’t stop winning.

These better-than-average earnings have been driven significantly by the tech, financials, and communication services industries. They’re the ones that have benefited most of all from our new pandemic-driven routines, after all – everything from the uptick in retail investing to the rise of online shopping. Energy and real estate companies, meanwhile, have continued to fall short.

Earnings growth

The bigger picture: Europe is playing catch-up.

European companies have taken analysts by surprise too: their fourth-quarter profits beat analysts’ estimates by 7%. But Europe’s still a long way behind the US, which might be because its stock market is made up of far fewer fast-growing tech companies. Europe does, however, have more economically sensitive “cyclical” companies – think banks and energy companies – which should work to its advantage when the recovery kicks in. That might be why JPMorgan and Goldman Sachs are both backing the region’s stocks to perform well in 2021.

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