Sector Watch: Energy Stocks Move Higher With Upbeat Earnings, Outlooks

A strong run of earnings reports today, along with a somewhat influential analyst note, are taking energy stocks higher in today's trading session.

The oil and gas sector and the coal group both enjoyed gains. The Dow Jones U.S. Energy Index picked up a small gain of 0.2% by the afternoon, as oil and gas rode into the green on this morning's positive earnings reports from Enron(ENE Quote - Cramer on ENE - Stock Picks) and Dynegy (DYN Quote - Cramer on DYN - Stock Picks). Those results came on the heels of Reliant Energy's(REI Quote - Cramer on REI - Stock Picks) earnings report yesterday, and all three companies beat analysts' estimates.

Reliant posted first-quarter earnings of 72 cents a share, topping the consensus Thomson Financial/First Call estimates of 70 cents. The strong first quarter, plus an adamantly positive outlook for the future sent the stock up 3.6% to $48.68. Enron, which also posting earnings well above estimates, reported a bottom line of 47 cents a share. Estimates came in at 45 cents. Enron was trading up by 2% to $60.64.

Dynegy, which posted net income of 41 cents a share, surpassed the consensus forecast by a penny, and the stock rose 4.6% to $55.58. The Dow Jones U.S. Gas Utilities Index is up 0.4% today, while the combination Dow Jones U.S. Oil & Gas Index rose 0.1%.

"As a group, I think [oil and energy stocks] are going to do well for the long-haul," said Doug Myers, vice president of trading at IJL Wachovia. He added that he wouldn't be surprised if in the near-term the market saw a "nice 10% jump across the board" in energy stocks.

The Amex Natural Gas Index rose a little more than 1% on today's earnings news, while the Chicago Board Options Exchange Oil Index slipped 0.1%.

Other well known names in the sector are slightly mixed in performance. Chevron(CHV Quote - Cramer on CHV - Stock Picks), an integrated petroleum company, lost 50 cents to $93.30. Oil services company Schlumberger(SLB Quote - Cramer on SLB - Stock Picks), posted a gain of 0.6%.

Lifting the coal side of the larger energy sector was a note put out this morning by Lehman Brothers analyst Peter Ward, who initiated coverage of Massey Energy(MEE Quote - Cramer on MEE - Stock Picks).

Ward, an energy and power analyst, tacked a buy rating on the coal producer, noting that "fundamentals for low-sulfur coal have never been better. In the past few months, the coal market has reversed a 20-year trend and become a sellers' market." Those seemed like just the right words to send Massey's stock up to a 52-week high of $25.30, before the issue settled back to $25.15. Massey, currently the sole component of the Dow Jones U.S. Coal Index, sent the index on the same ride.

Ward also issued a notes on competitors Arch Coal(ACI Quote - Cramer on ACI - Stock Picks) and Consol Energy(CNX Quote - Cramer on CNX - Stock Picks), raising Arch's estimates. "Frankly, Arch is a better pick" than Massey, Ward said in a telephone interview. Arch was recently up $1.37, or 3.9%, to $35.15.

As commodity indexes show prices on the rise since the start of April, Myers noted that "the end-users are going to have to pay substantially higher prices for their energy use," citing the recent problems in California as one specific example. As a result, he sees "increased space for better margins."

Since the start of April, the Dow Jones oil, gas and energy indexes have each been on a steady rise.