It's way too early to get out the bunting, but there's no doubt that the recent uptick in the price of oil is likely to have a positive impact on the industry. The slump in capital expenditures caused by the COVID-19 pandemic in 2020 means that there could be some pent-up demand that will get released given an oil price above $50 a barrel. If that's the case, then Emerson Electric (NYSE:EMR), Honeywell International (NYSE:HON), and ChampionX (NASDAQ: CHX) are three industrial companies set to benefit. Here's why.

Emerson Electric

The company generated 58% of its segment earnings from its automation solutions segment in its fiscal 2020, with the rest coming from its commercial and residential solutions segment. The former segment is the focus here, and specifically the 24% of total company revenue that comes from process automation sales to the oil and gas industry.

For reference, Emerson's automation solutions orders declined significantly when the price of oil fell in the 2014-2016 period suggesting that a weak oil price is indeed bad news for the segment.

An oil refinery.

Image source: Getty Images.

While Emerson's growing exposure to alternative fuels is sometimes overlooked, there's no doubt that support from higher oil prices is likely to result in a freeing up of budgets from Emerson's customers. That's good news in the near term because it means more profits for Emerson and gives management the resources to continue to invest in automation solutions for the alternative fuels industry.

Turning to the details, management gave the following guidance on its fourth-quarter earnings call in early November. However, it's worth noting that the guidance below was given with the assumption of a price of oil per barrel of $35-$50. Given that the price of oil has risen from around $36 on the day that guidance was given to around $53 at present, it's reasonable to believe that there's upward pressure on Emerson's estimates.

Underlying Sales Growth Guidance

Full Year 2021

First Quarter 2021

Automation solutions

(4%) to (1%)

(13%) to (12%)

Commercial and residential solutions

4% to 7%

5% to 6%

Total

(1%) to 2%

(7%) to (6%)

Data source: Emerson Electric presentations.

For a flavor of how shifts in oil prices can change order patterns, Emerson's project funnel (large projects it is actively pursuing) stood at $7.1 billion in February 2020, only to be reduced to $6.4 billion in November. Furthermore, $800 million was taken out of the funnel between April and November, and $700 million was shifted into 2021 from 2022. The corollary is that a higher price of oil could lead to projects added to the funnel and possibly pulled forward into 2021.

Honeywell International

The industrial conglomerate's exposure to oil and gas is mainly felt in its performance materials and technologies (PMT) segment. For reference, PMT is usually responsible for around 30% of Honeywell's earnings. Within PMT, Honeywell process solutions (HPS) is an automation business that competes with Emerson Electric's automation solutions segment. Meanwhile, Honeywell's UOP business (formerly Universal Oil Products) offers refining catalysts and absorbents.

As such, around 48% of PMT segment revenue comes from oil and gas, and petrochemicals, so the dramatic fall in the oil and oil products demand can be seen in the segment's sales progression in 2020.

Honeywell PMT segment growth.

Data source: Honeywell International presentations. YOY = year over year. . Chart outlines organic sales growth which excludes acquisitions and divestitures. 

It follows that a pick up in oil prices, if accompanied by an increase in demand for oil,  could result in a pick up in orders at HPS (just as with Emerson). Meanwhile, an increase in economic growth is likely to lead to increased demand for refined products, and that should be good news for UOP.

ChampionX

The collapse in oil prices couldn't have happened at a worse time for the merger of upstream oil equipment and technology company Apergy Corporation and the former Ecolab upstream energy business, ChampionX Holding. The idea behind the creation of the new company, ChampionX Corporation, is to marry Apergy's expertise in drilling and artificial lift technology with the production chemicals from the former ChampionX.

An oil field.

Image source: Getty Images.

The logic behind the merger is indisputable, but the timing is unfortunate. The key metric to follow with upstream oil and gas companies is the rig count. As you can see in the chart below, the rig count tends to lag movements in the price of oil.

WTI Crude Oil Spot Price Chart

Data by YCharts

If this relationship holds, and the price of oil remains above $50, then the rig count should continue to move upwards, and that would be good news for ChampionX. As such, the company could see significant upward revisions to earnings estimates if oil prices and demand continue to strengthen -- something to look out for.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.