The oil price slide has been one of the most talked-about events in the global economic calendar over the past few months. After a smooth ride in the early phase of the year, oil price touched the lowest level in 27 months in early October.
Sluggish global economic growth, cooling of geopolitical issues and a supply glut can be held responsible for such a massacre. The International Energy Agency (IEA) trimmed its forecast for oil demand this year and the next, following lackluster global growth.
This rout in oil prices brought into focus the Oil Services ETFs which were hit very hard in the recent months by poor end-market demand. Oil drillers may not find enough drivers to ramp up production in the near future which might keep their activities subdued in the short term.
Zacks Industry Rank for the said space is presently in the bottom 22%. Thanks to this bearish backdrop, the sector demands extra observation during this earnings season. Let’s delve a little deeper into the earnings and see how things are shaping up for the space.
In this piece, we have considered three stocks, namely – Baker Hughes Inc.(BHI), Schlumberger Ltd. (SLB) and Halliburton Company (HAL). Among the trio, Baker Hughes and Schlumberger reported their earnings on October 16 followed by Halliburton on October 20. Results were broadly mixed with only Halliburton beating on both lines (read: 3 Energy ETFs Sliding to 52-Week Lows).
Results in Detail
Most recently, Halliburton – the second largest oil service companies – came up with earnings and revenue beat for Q3. Earnings of $1.19 per share from continuing operations beat the Zacks Consensus Estimate of $1.10.
Halliburton’s revenues of $8.7 billion reflected a 16.5% year-over-year improvement and 2.4% beat over the Zacks Consensus Estimate. Shares were up 0.6% in the key trading session following the declaration of results.
Schlumberger – the world’s largest oilfield services provider – came up with a mixed Q3 by reporting adjusted earnings of $1.49 per share (excluding special items), which edged past the Zacks Consensus Estimate of $1.46 and the year-ago number of $1.29.
However, its total revenue of $12.6 billion expanded 8.9% year over year but fell shy of the Zacks Consensus Estimate of $12.7 billion. Still, SLB added more than 4% following its results, probably reflecting a broader market rebound.
Baker Hughes’ adjusted earnings from continuing operations of $1.02 a share missed the Zacks Consensus Estimate of $1.15 but came ahead of the year-ago figure of $0.81 per share. Its revenues of $6.25 billion grew 8.0% but missed the Zacks Consensus Estimate of $6.29 billion.
The space got mixed signals thanks to varied performances. While a single stock pick is always an option to play earnings, we could see a deep impact on ETFs that are heavily invested in these popular oil service companies.
Notably, the ETF route will help investors to mitigate one company’s average performance with the other company’s stellar results. Below, we have highlighted three oil-services ETFs with considerable allocation to SLB, HAL and BHI that could be in focus following oil-service earnings:
iShares US Oil Equipment & Services ETF (IEZ)
This ETF – tracking the Dow Jones U.S. Select Oil Equipment & Services Index – invests about $457 million in assets in 54 securities, focusing solely on the energy world. In-focus SLB takes up the first position here with 22.7% of holdings.
Generally, when one stock accounts for as much as 22% of an ETF’s weight, its individual performance decides a lot of the fund’s price movement. HAL takes up the second position with about 10% of total assets while BHI gets the fourth position with about 5.9% share.
The fund has lost about 9.4% in the year-to-date frame (as of October 20, 2014) thanks to the recent energy equity sell-off. Following the release of the earnings by the trio, IEZ has added about 1.8% (as of October 20, 2014). IEZ is a cheaper fund, charging 0.43% for its expense ratio. The fund has a Zacks ETF Rank #4 (Sell) with a High risk outlook.