Oil prices are down, but energy companies' earnings estimates keep rising — these stocks are cheap

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Oil company profits are gushing --- Exxon Mobil's more than tripled in the most recent quarter. And some companies have scope to increase their dividends.

Oil prices have fallen from a peak earlier this year. But energy companies’ earnings estimates have kept rising on stronger demand and low capital spending.Take... Oil prices have fallen from a peak earlier this year. But energy companies’ earnings estimates have kept rising on stronger demand and low capital spending.Take a look at a 10-year chart of continuous front-month quotes for West Texas Intermediate crude oil CL.

WTI was trading for $93.11 a barrel on Aug. 11, down 29% from its intraday peak at $130.50 on March 7. But it was still up 24% from then end of 2021, when it traded at $75.21. That was before Russia roiled the world energy market by invading Ukraine. One important factor for investors is that rolling 12-month earnings-per-share estimates — upon which forward price-to-earnings ratios are based — keep increasing.

For a broader approach, the iShares Global Energy ETF IXC holds every stock in XLE, while adding major international players, such as Shell PLC SHEL , TotalEnergies SE TTE , BP PLC BP , Enbridge Inc. ENB and Canadian Natural Resources Ltd. CNQ . IXC’s forward P/E is only 6.9; its consensus 12-month EPS estimate has increased 4% from a month ago.

Then we looked further into dividend coverage. One way to estimate dividend-paying ability is to look at free cash flow estimates. We can divide estimated free cash flow per share by the current share price for an estimated FCF yield. If this is higher than the current dividend yield, a company appears to have “headroom” to raise its dividend, buy back shares or take other actions that may benefit investors.

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