Oil stocks continue to dominate investors’ watch lists. Among the top stocks in this top industry, Earthstone Energy (ESTE) in IBD Sector Leaders stands out for its high-quality fundamentals.
New Texas Oil Boom Raises Permian Basin Oil Reserves
Earthstone Energy is currently a component of the IBD 50. The Woodlands, Texas-based company is an exploration and production company that has benefited from the recent Texas oil boom, fueled by shale deposits in the Permian Basin.
When Russia attacked Ukraine in February, oil stocks rose. As the war continued, the US government reopened dormant shale fields and these companies began reinvesting their profits into drilling the greater Permian Basin. That area now accounts for nearly 40 percent of crude production and 15 percent of natural gas production, according to the Federal Reserve Bank of Dallas.
Oil production in the West Texas and southeastern New Mexico regions is forecast to rise by about 50,000 barrels per day (bpd) to 5.45 million bpd in November, according to the US Energy Information Administration.
By comparison, the shale oil-rich Bakken drilling region in North Dakota and Montana is forecast to produce 1.19 million bpd in November.
This increase affects oil share companies like Earthstone’s bottom line. Earthstone Energy is expected to show a whopping 283% EPS growth in 2022 over the previous year. Analysts forecast earnings of $4.79, up from $1.25 in 2o21.
Earthstone trades above resistance after Q3 earnings
After the earnings report on Nov. 2, the oil stock traveled mostly sideways, but traded above a key resistance level earlier in the week.
Third-quarter revenue beat expectations, but the company missed a profit. Analysts were expecting EPS of $1.42 per share on revenue of $460.4 million. Earthstone reported earnings of $1.30 per share on sales of $531.5 million.
Earnings are still up a strong 271% year over year, while sales are up 382%, according to IBD MarketSmith.
Oil stock is trading near a short-term resistance level around 17.25. A move above this area would be positive for ESTE stock. Investors may also interpret this as a cloudy double bottom base with a buy point of 17.25. Earthstone stock is up about 45% year-to-date.
Its relative strength line has climbed well on the stock’s weekly chart. Perfect EPS and Composite Ratings of 99 also bode well for the stock.
Earthstone initially broke out on Monday, but shares have retreated over the past week. The stock is now near its 21-day exponential moving average and above its 50-day moving average.