S&P 500: -8.72 (-1.01%)
Earnings on deck: Big Oil
Major oil companies Exxon Mobil, Chevron, BP, and Royal Dutch are set to report earnings this week (ConocoPhillips reported last week).
The major oil companies benefited from flight to safety in the second half of 2008, as investors placed a premium on the industry’s high earnings and dividend growth stability. But in 2009, this group has trailed the broader market as the impact of the credit crisis intensifies within the industry.
Industry pricing is notably lower than in the past few years due to rising stockpiles and easing demand in response to the global economic downturn. Budgets are being cut as a result, making it difficult to expand oil and gas production. Adding to the difficulties is rising nationalism, which increases the political risk and makes access to large energy resources more difficult and fiscal terms less attractive.
We are expecting lower oil prices to result in a substantial drop in income for the oil majors, and there is very little they can do about costs in the short-term. As we look specifically at Chevron and Exxon Mobil’s results later this week, we will be paying special attention to their capital expenditure outlook. This will likely determine their growth rate for the next several years.
Qualcomm (QCOM) +4.38%
Qualcomm announced the settlement of a technology patent infringement battle with Broadcom, which help offset the company’s wide earnings miss. Despite the poor quarterly results, Qualcomm raised its full-year sales forecast to reflect strong demand for 3G enabled products and services.
Qualcomm’s technology has grown more popular with the rise of third-generation (3G) phones that offer high-speed Web. Qualcomm surpassed Texas Instruments last year as the biggest maker of mobile-phone digital signal processors – the essential chips in handsets.
Quick Hits
Peter Lazaroff, Junior Analyst
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