It has been difficult to make a bad move in Canada's energy patch in recent months, with the price of oil again inching its way towards $100 (U.S.) a barrel. The price of crude has risen about 15 per cent since early last November, thanks largely to growing optimism about the global recovery and healthy demand from China, India and other emerging markets.
In the screen we have collected a set of data that can be used to help assess the relative strength of Canadian energy companies. It lists 22 stocks with market valuations of more than $1-billion (Canadian). The group includes businesses involved in oil, gas and consumable fuels as well as energy equipment services.
The information comes from StarMine, a Thomson Reuters service that ranks analysts and gathers earnings estimate data to which it applies proprietary research to detect momentum and other factors.
The first such measurement is called Starmine SmartEstimate, which is a proprietary blend of analysts' estimates that aims to more accurately forecast upcoming results than the consensus estimate. It gives a weighting to each analyst's estimate according to his or her past accuracy. SmartEstimate also gives greater emphasis to the most timely forecasts and less to those that have not been updated for a lengthy period.
Our screen lists the degree of change, up or down, in the SmartEstimate for each company, measured as a percentage of the original forecast. This column gives an idea of which way momentum is going for the stock.
The percentage difference between the SmartEstimate and the consensus estimate of the Street, called the mean, produces another Starmine metric called the Predicted Surprise. When the two differ by a material amount, i.e. 2 per cent or more, the measurement gets the direction of a future surprise correct 70 per cent of the time, according to Tim Gaumer, director of fundamental research at Thomson Reuters.
The third Starmine measurement applied to this screen is the Analyst Revisions Model, or ARM, which is a measure of the change in analyst sentiment ranging between 1 and 100, with 100 representing the highest rank.
The ARM looks at changes in the consensus over multiple time frames and not just for earnings, but also EBITDA and revenue revisions. It also takes into account the Predicted Surprise percentage shift on these various measures. When this score is near the top (100) or bottom (1) of its range, it is highly predictive of future earnings revisions and helps investors anticipate these events, Mr. Gaumer says.
We have organized the stock rankings here by their Predicted Surprise numbers. The results put Petrobank Energy and Resources Ltd. at the top of the list with a score of 21. The Calgary-based company recently spun off Petrominerales Ltd., which owns oil assets in Peru and Colombia, but retains a 66 per cent stake in the TSX-listed firm.
Analysts have cut their expectations for Petrobank's cash flow and share profit for the current fiscal year and the difference between the Street's consensus estimate and Starmine's smart estimate is large, producing a big Predicted Surprise value. The low ARM number suggests that further downward revisions could be coming.
SouthGobi Energy Resources Ltd. stands out on the list for having both a big Predicted Surprise and high ARM valuation. The Vancouver-based company is an integrated exploration, development and coal mining company with coal deposits in Mongolia's South Gobi Region that supplies markets in Mongolia and China.
The list of 22 excludes some major Canadian energy players that registered Predicted Surprise values of less than zero. Suncor Energy Ltd., Canada's largest company in the sector by market cap, is not included in the list because its Predicted Surprise measured a negative 0.1.
To help further differentiate these energy stocks, the screen includes several standard financial ratios to assess debt loads, valuations and profitability.