No other sector comes close to energy when it comes to profit growth these days. The industry is expected to deliver a 126% gain in second quarter profits, year-over-year, trouncing every other sector in the S&P 500 (including tech, up an estimated 63%).
It won't last. Crude prices are back to prewar levels and refining margins have almost certainly peaked. The sector slid 13% in the second quarter as oil prices fell, though it's still up 19% this year.
While the outlook for oil prices isn't great, much of the industry still looks cheap, according to analysts. Upstream and services stocks trade nearly 30% below their consensus price targets, according to Energy Insider's analysis of FactSet data. Integrated giants like Chevron and ExxonMobil trade 23% below consensus.
Independent power producers look even cheaper. Companies like Constellation Energy, Vistra, Talen Energy, and NRG Energy trade an average 37% below Wall Street's collective target, reflecting hopes that AI-related growth will pan out.
Refiners are an outlier; the VanEck Oil Refiners ETF is up 33% this year on a surge in operating margins. Price targets for refiners imply 3% downside from here.
One caveat to keep in mind with price targets is that they're only snapshots in time. It can be more helpful to focus on the direction of earnings forecasts. On that front, oilfield services have one of the strongest setups with more positive revisions and clearer catalysts than other areas.
Wall Street's Scorecard
Independent Power Producers
Companies in this space -- like Constellation, NRG, and Talen -- generate electricity and sell it wholesale or "behind the meter" to data centers and other large energy consumers. Expectations that AI would lead to a scramble for power in 2024 and 2025 sent their stocks soaring.
The last six months have been rough, though, as bespoke deals for power supply slowed. Constellation Energy is down more than 30% since January; NRG Energy is off more than 15%.
The selloff may have gone too far. Power plants currently operating are still able to deliver the most economical energy versus new builds, according to UBS. The asset values, generation capacity, and future revenue streams are now worth more than where the stocks trade, the bank argues.
Coming regulatory actions could also benefit these power producers.
Grid operator PJM is holding an auction this week to set power capacity prices for 2028-2029. The auction will determine how much producers get paid to provide capacity during periods of peak demand.
These prices are likely to be steep since the PJM is thin on capacity versus demand. UBS expects PJM to secure about eight gigawatts less capacity than it says it needs to keep the grid reliable during peak demand. This could push peak prices to $325-per-megawatt day, the highest level allowed under the auction's rules and a direct benefit to power producers.
Market pricing is also moving in producers' favor. Future power margins in PJM West, a key wholesale market in the PJM grid, are moving higher. UBS says the spread between future electricity prices and gas costs is up 24% this year for 2027 and 21% for 2028. If PJM auction prices come in strong, producer stocks should rise.
Constellation Has Fallen Sharply From Last Year's Peaks
Upstream and Services
Upstream earnings look strong now because producers booked sales when prices were higher. The third quarter won't be as profitable. Among independent producers, analysts expect Occidental Petroleum to report $1.33 a share, down from $1.84 in the second quarter. Results for ConocoPhillips, Diamondback Energy, and EOG Resources are also expected to slide sharply.
Diamondback still looks attractive, according to JPMorgan analysts. They point out that the company can keep growing without putting much strain on its cash flow or balance sheet. Diamondback says it can add oil volumes and remain free-cash-flow positive even if WTI crude falls to $60 a barrel, while new pipeline capacity should reduce its exposure to weak natural-gas prices in West Texas.
The company is expanding into deeper zones of the Midland Basin with a program that could add hundreds of future drilling locations on acreage it controls. The company is also exploring a partnership to build a power plant next to a data center in West Texas. JPMorgan sees the stock reaching $240, up about 32% from a recent $182.
Another cheap name is EOG, according to Jefferies analysts. EOG has outperformed other large oil producers this year, helped by strong output from newer wells and growing optimism that its shale exploration in the Middle East could become a meaningful source of growth, Jefferies argues. The brokerage has a $175 price target on the stock, up from recent prices around $133.
Services companies may in an even better spot. Baker Hughes -- selling large amounts of gas turbines and other AI-related equipment -- should see earnings rise from 49 cents a share in the second quarter to 59 cents in the third quarter; Halliburton, SLB, and TechnipFMC are also expected to report sequential gains. Next year should see continued gains for the group.
JPMorgan expects international and offshore activity to support the group into 2027, offsetting a temporary slowdown in the Middle East. Pricing is also recovering in the North American well-completion market as older diesel-powered fracking fleets are retired and newer gas burning fleets remain sold out. That means service companies may be able to charge more without a major increase in drilling, benefiting Halliburton in particular.
Demand for data center equipment and energy services is also fueling gains, notably for Baker Hughes. Its Industrial and Energy Technology segment, which makes up half of its estimated 2026 revenue $27.5 billion and the majority of its backlog, sells gas turbines for power plants and collects service revenue over the life of the equipment.
Three Undervalued Energy Plays
Baker is also signing up customers, including a new deal with Kodiak Gas Services, a gas-compression company expanding into power systems for data centers. Jefferies analysts say the agreement gives Baker a path to supply up to 1.8 gigawatts of power generation equipment to Kodiak; the initial award implies $1 billion of revenue and strengthens Baker Hughes' position in smaller turbines for data center power.
UBS estimates the first phase could be worth $900 million to $1.3 billion to Baker Hughes, before counting service revenue. Those estimates are equivalent to 6%-9% of the IET's segment's estimated 2026 revenue -- or 3%-5% of Baker Hughes' total. The equipment revenue would likely be recognized over several years rather than all at once.
SLB and Halliburton have also started to pick up data center or distributed-power deals. SLB sells cooling equipment, which JPMorgan estimates is on track to reach a $1 billion annualized revenue run rate by the fourth quarter, making it a meaningful new business for a company expected to generate more than $36 billion in sales this year.
Halliburton has exposure through a joint venture with VoltaGrid, a provider of mobile power systems that can supply electricity to oilfield sites and other customers. Halliburton and VoltaGrid will manufacture equipment that can deliver 400 megawatts of power by 2027 or early 2028, the companies say. Halliburton also benefits if North American fracking capacity tightens and pricing improves.
Refiners In The Rear
For the second time in five years, refiners are benefiting from historic fuel supply disruption. Crack spreads -- the gap between crude oil inputs and refined fuel prices -- are the highest since Russia invaded Ukraine. Several refiner stocks hit all-time highs last quarter.
The setup still looks favorable near-term. Ukraine's drone strikes have chipped away at Russia's refining capacity, causing Russia to restrict diesel exports while fuel inventories globally remain low.
Cheaper crude prices help too, because refiners pay less for their main input while prices of gasoline, diesel, and jet fuel remain high. Ajay Parmar, senior oil analyst at ICIS, tells us he expects "quite strong refining margins this summer globally."
If you don't already own refiners, now is probably not a good time to start; the group is trading 3% above of average price targets, according to our analysis.
Parmar expects product markets to loosen later this year as Middle East shipping disruptions ease, China allows more exports, and demand growth weakens. That could make this summer the last big burst for refiners rather than the start of a new leg. higher.
Barron's Energy Roundup
Running on Fumes? Fuel cell maker Bloom Energy took a beating after a short-seller report claimed the company relies heavily on sourcing a rare-earth material, scandium oxide, from China.
Bloom called the report "false and misleading" and said it has enough scandium to fulfill orders. The company said in a blog post that it has a diversified supply chain and that "we are not dependent on China for scandium oxide."
Short-seller reports often move stocks sharply near-term, and Bloom is especially vulnerable. The stock is highly volatile and after soaring 1,700% over the last two years, it's in rarefied AI territory; shares trade at 109 times estimated 2027 profits of $4.46 a share.
The steep valuation arises largely from Bloom's growing backlog. Bloom has deployed just 1.5 gigawatts worldwide, but it now has a $20 billion contracted backlog, up from $11.6 billion in 2023. Deals to power AI infrastructure with Brookfield Asset Management and Oracle turbocharged the stock recently.
Mizuho analysts defended Bloom this past week, saying the short-seller's claims about project delays aren't related to raw-material shortages. Bloom's core attraction -- speed to power for AI developers -- remains intact, they argue, pegging the stock at $280 over the next year.
But the stock's run-up has some brokerages on the sidelines. Jefferies recently raised its target to $246 but kept a Hold on the stock, saying Bloom's valuation already assumes a favorable execution scenario that the company hasn't yet demonstrated at scale.
Stock impacted: Bloom Energy $(BE)$
Subsidizing Utilities American Electric Power became the latest highly profitable utility to secure a loan from Washington last week, saying it plans to use the money for grid upgrades. It didn't do much to move the stock, though it's a positive for future financial results.
AEP Texas, a subsidiary of AEP, received a loan of up to $3.26 billion from the Energy Department to fund roughly 100 transmission projects and about 2,800 miles of new or upgraded power lines.
The agency said the loan will save Texas households and businesses about $685 million over 30 years, while helping support demand from AI, advanced manufacturing, and the Permian Basin.
AEP already plans to spend roughly $78 billion through 2030 on its grid and power system. Analysts say that figure could rise, because the current plan doesn't include all of the new demand AEP is seeing from data centers and other large customers.
If AEP can borrow from the government at a lower cost than it could in private markets, that should reduce the financing cost embedded in future rates. The government has said utilities receiving Energy Dominance Financing loans must assure the agency that the financial benefits will be passed on to customers.
AEP isn't alone in getting government help. In June, DTE Energy received a $1.6 billion DOE loan that the agency said would save Michigan customers more than $700 million. In February, Southern Co. received a $26.5 billion loan package that DOE said would reduce interest expense by more than $300 million a year and save customers more than $7 billion. AEP also received a separate $1.6 billion loan guarantee in October for transmission upgrades across several Midwestern states.
AEP's stock recently traded near a record high and remains up about 16% this year, despite ending the week lower.
Stocks impacted: AEP $(AEP)$, DTE Energy $(DTE)$, Southern Company $(SO)$
LNG Bump LNG stocks enjoyed a rare week in the green, bolstered by renewed fighting between Iran and the U.S. and Venture Global's early look on how higher prices would impact its second quarter.
Venture Global shares were up roughly 10% from last week's close, while Cheniere Energy gained about 5% and development-stage NextDecade rose about 4%.
The latest catalyst came from Qatar, which paused plans to rapidly restore production at its Ras Laffan complex after a Qatari LNG tanker was attacked near Hormuz. QatarEnergy will instead keep the facility operating at minimum levels and reduce the number of ships docking there.
Ras Laffan has been largely shut since March, and damage to about 17% of its capacity is expected to take at least three years to repair. The aborted ramp-up delays the return of one of the world's largest sources of LNG as Europe and Asia prepare to secure winter supplies. Asian spot LNG prices are now more than 80% above prewar levels, while European natural-gas prices climbed above EUR50 per megawatt hour Thursday.
The setup created another windfall for Venture Global. The average amount it earned from liquefying and selling gas jumped nearly 70% in the second quarter from the first quarter, to $6.45 per million British thermal units, as it sold more cargoes at high short-term prices alongside cheaper long-term contracts. Some of those sales came from plants still starting up. The company actually sold about 3% less LNG that counted toward revenue, so the increase came mainly from better pricing.
Cheniere's largely contracted business provides steadier cash flow and less direct upside, although prolonged instability could improve its marketing margins and strengthen demand for future contracts.
The incumbents have competition. Sempra's Energía Costa Azul project in Mexico shipped its first LNG cargo this week. The 3.25-million-ton-a-year facility is the first export terminal on Mexico's Pacific coast and gives U.S. natural gas a shorter route to Asian customers, without relying on the Panama Canal or Middle Eastern supply routes. The shipment is primarily an execution milestone for Sempra. It's also a reminder that today's high LNG prices are fueling more supply.
Stocks impacted: Venture Global $(VG)$, Cheniere Energy (LNG), NextDecade $(NEXT)$, Sempra Energy $(SRE)$
Read More Barron's Energy News
Fuel Prices Could Swing Higher Again. It's Not Just Iran.
Sunrun Wants to Put AI Data Centers in Homes. It Isn't Lifting the Stock.
Why GE Vernova, Caterpillar Stocks Are Getting Crushed
First Solar Stock Got Upgraded to Buy. Why the Stock Keeps Falling.
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(END) Dow Jones Newswires
July 13, 2026 05:55 ET (09:55 GMT)
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