So say quantitative strategists at Merril Lynch/Banc of America Securities, who compared monthly stock returns of energy companies to the overall S&P 500′s return and the monthly oil-price change. They concluded that most analyst estimates for the energy sector have not caught up to oil price increases.
Usually, there is a lag of about three months between price changes and estimate revisions, and at the moment this is reflecting badly on energy valuations.
The same note however points out that oil price volatility remains historically high since April 2008.
Whereas overall equity market volatility has declined from its peak levels last year, oil prices have grown increasingly more volatile over the past year, and thus a higher risk premium for companies within the sector may be warranted.