The energy sector’s tale of woe is well-documented, but the Energy Select Sector SPDR (NYSEArca: XLE) did gain 4.1% last week. XLE, the largest energy sector exchange traded fund, is still down 3.2% to start 2015 after losing 8.7% last year to finish 2014 as the worst performer among the nine sector SPDR ETFs.

Ahead of a major week of earnings reports, the energy sector, the seventh-largest sector weight in the S&P 500, faces an interesting problem: Valuation. Energy stocks, which during last year’s tumble were looking attractively valued relative to the S&P 500, now look expensive.

“The ratio of earnings expected for the next 12 months relative to price for the S&P 500 Energy sector stood at 22.4 times on Friday, its highest level since 2002. That compares with a 16.6 valuation for the S&P 500, which also is trading above its 10-year average of 14.1,” reports Kristen Scholer for the Wall Street Journal.

Not surprisingly, the energy sector, the worst performer in the S&P 500 last year, is expected to be an earnings season disappointment.

“The Energy sector currently has the highest number (14) and the highest percentage (33%) of companies with a Sharp estimate below the mean EPS estimate for the third quarter. At the sub-industry level, 11 of these 14 companies are in the Oil & Gas Exploration & Production sub-industry,” notes FactSet. [Sector ETFs for Earnings Surprises]

The energy sectors frothy valuations will be put to the test this week amid an avalanche of earnings updates from the group’s marquee constituents. Dow component Chevron (NYSE: CVX), XLE’s second-largest holding at 13.6% of the ETF’s weight, delivers results on Friday. That report is preceded by ConocoPhillips (NYSE: COP) and Occidental Petroleum (NYSE: OXY) on Thursday. ConocoPhillips and Occidental combine for over 7.2% of XLE’s weight.

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