Forecasts for energy industry earnings and the price of oil are too high and the companies’ stocks will “bear the brunt” of concern the economy is slipping into a recession, according to Wells Fargo & Co.
Energy-company earnings will grow 15 percent in 2011 and 5 percent in 2012, according to Gina Martin Adams, a New York-based senior analyst at Wells Fargo, in a note today. That compared with the average analyst estimate of 40 percent in 2011 and 9.2 percent in 2012, according to the report. She cited waning economic momentum, oil-price forecasts that are too high and risk of a stronger U.S. dollar as factors that may weigh on the stocks.
“We see the real possibility for the sector to bear the brunt of recession fears,” Adams wrote. She added, “Further economic downside, not upside, is the greater concern to us.”
A gauge of energy companies in the S&P 500 fell 1.6 percent this year through Sept. 16, compared with a decline of 3.3 percent for the benchmark index for U.S. stocks, amid concern that growth is stalling in the world’s largest economy. American gross domestic product may expand by 1.6 percent this year, according to the median of 66 economist estimates in a Bloomberg survey. That’s down from a median forecast of 1.7 percent in August and below last year’s 3 percent rate.
The median crude-oil price forecast is “in excess of $100” a barrel for 2012 and beyond, compared with Wells Fargo’s prediction of $88.75 a barrel in 2012, Adams said. She added that while the Dollar Index is still down from a year ago, “slowing growth and mounting political tensions in Europe may result in pressure on the Euro and continued flight to the dollar as a safe haven.”