The recent surge in oil production and an uptick in oil prices brought the Oil Services ETFs into the limelight. Innovative technologies along with streamlined industrialization is ramping up the production of oil in the U.S. while increasing global activity and stabilization in many nations like the U.S., China and some corners of Europe are helping the demand scenario. Relentless geopolitical issues in oil-rich nations also helped the U.S. oil-service to soar this year (read: Uprising in Iraq Puts These Oil ETFs in Focus).
Zacks Industry Rank for the said space is presently in the top 37%. Thanks to this bullish backdrop, the sector kicked off this earnings season on a decent note. Let’s delve a little deeper into the earnings and see how things are shaping up for the space (read: Market Beating Sector ETFs of 2014's First Half).
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 was the first to report its earning on July 17 followed by Schlumberger on July 18 and Halliburton on July 21. Results were broadly mixed with only Baker Hughes beating on both lines.
Results in Detail
Baker Hughes’ adjusted earnings from continuing operations of $0.92 a share beat the Zacks Consensus Estimate of $0.89 while its revenues of $5.9 billion grew 8.2% and surpassed the Zacks Consensus Estimate of $5.8 billion. Improved business in North America can be attributed to this beat.
Schlumberger – the world’s largest oilfield services provider doled out a mixed Q2 by reporting adjusted earnings of $1.21 per share (excluding special items), which fell shy of the Zacks Consensus Estimate of $1.35 and deteriorated from the year-ago number of $1.57. However, its total revenue of $12.1 billion expanded 7.8% year over year and beat the Zacks Consensus Estimate of $11.9 billion.
Halliburton too missed on the bottom line but exceeded top line expectations. Earnings of $0.91 per share from continuing operations missed the Zacks Consensus Estimate by a penny. Halliburton’s revenues of $8.1 billion reflected a 10.0% year-over-year improvement and 2.5% beat over the Zacks Consensus Estimate.
The space got mixed signals thanks to varied performances. Since reporting earnings, SLB shares were up 0.93%, BHI was up 2.96% and HAL advanced 3.23%. While a single stock pick is always an option to play earnings, we could see a pretty profound impact on ETFs that are heavily invested in these renowned companies.
Notably, the ETF route will help investors to mitigate one company’s average performance through the other company’s stellar show (read: Soaring Halliburton Stock Puts These Energy ETFs in Focus).
Below, we have highlighted three oil-services ETFs with considerable allocation to SLB, HAL and BHI that could see some gains in a few upcoming trading sessions and are 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 $644.2 million in assets in 52 securities, focusing solely on the energy world. In-focus SLB takes up the first position here with 21.77% of holdings.
Generally, when one stock accounts for as much as 21% 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 10.6% of total assets while BHI gets the fourth position with about 6.5% share.
The fund surged a handsome 18.8% in the year-to-date frame (as of July 22, 2014). Following the release of the earnings by the trio, IEZ added about 1.12% (as of July 22, 2014). IEZ is a cheaper fund, charging 0.43% for its expense ratio. IEZ has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
Market Vectors Oil Services ETF (OIH)
OIH tracks the Market Vectors US Listed Oil Services 25 Index. The index invests $1.40 billion of assets in 26 holdings. OIH devotes as much as 20.95% weight to SLB, followed by 12.65% in HAL. BHI gets the fifth spot with about 4.95% of allocation. OIH is cheap in the space with an expense ratio of 0.35% (see all the Energy Equity ETFs here).
The fund was up about 1.08% over the last five years (as of July 22, 2014) and returned about 19.0% year-to-date. OIH has a Zacks ETF Rank #3 with a High risk outlook.
PowerShares Dynamic Oil & Gas Services Fund (PXJ)
This product offers exposure to 30 energy stocks with HAL, SLB and BHI at the second, third and sixth positions, respectively, allocating more than 5% of total assets in each. PXJ tracks the Dynamic Oil & Gas Services Intellidex Index and has amassed about $126.2 million thus far. The ETF charges 62 bps in fees, so it is a bit more expensive than some of its counterparts in the space.
The fund added about 0.76% following the earnings release of the three companies, and 13.73% year-to-date. PXJ has a Zacks ETF Rank #3 with a High risk outlook.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>