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Will Higher Activity Boost Halliburton (HAL) Q4 Earnings?

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Halliburton Company (HAL - Free Report) is set to release fourth-quarter results before the opening bell on Nov 24. The current Zacks Consensus Estimate for the to-be-reported quarter is a profit of 34 cents per share on revenues of $4.1 billion.

Let’s delve into the factors that might have influenced the oilfield service company’s performance in the December quarter. But it’s worth taking a look at Halliburton’s previous-quarter performance first.

Highlights of Q3 Earnings & Surprise History

In the last-reported quarter, this Houston, TX-based provider of technical products and services to drillers of oil and gas wells met the consensus mark on the back of strength in its international operations. Halliburton had reported net income per share of 28 cents, in line with the Zacks Consensus Estimate. But the company’s quarterly revenues of $3.9 billion underperformed the Zacks Consensus Estimate by 1.5% due to lower-than-expected North America sales.

As far as earnings surprises are concerned, Halliburton beat the Zacks Consensus Estimate in three of the last four quarters, delivering an earnings surprise of 12.5%, on average. This is depicted in the graph below:
 

Halliburton Company Price and EPS Surprise

Halliburton Company Price and EPS Surprise

Halliburton Company price-eps-surprise | Halliburton Company Quote

Trend in Estimate Revision

The Zacks Consensus Estimate for the fourth-quarter bottom line remained the same in the last seven days. The estimated figure indicates an 88.9% surge year over year. The Zacks Consensus Estimate for revenues, meanwhile, suggests a 26% increase from the year-ago period.

Factors to Consider

Oil and natural gas prices have rebounded sharply, revisiting their multi-year highs due to rising demand. Consequently, drilling activity — an important factor for services companies — has been picking up. In the United States, a region on which Halliburton is highly dependent, rig count at the end of the fourth quarter was 586 compared with 521 three months ago and 351 a year back, in sync with the strength in commodity prices. The number of active units in Canada and the international markets has gained sharply too. The steady growth in rig count is an encouraging indicator of contracting activity.

Considering the improved operating environment, the Zacks Consensus Estimate for the fourth-quarter operating income of Completion & Production and Drilling & Evaluation is pegged at $351 million and $229 million, respectively, indicating an increase of 48.7% and 99.1% year over year.

But on a somewhat bearish note, the company is likely to have experienced a sequential uptick in capital investments. During the July-September period, Halliburton spent some $190 million as capital outlay, which it expects to ramp up due to higher demand for its premium equipment and services. This might have impacted the company’s bottom line in the fourth quarter. The company has also warned about an increase in corporate and other expenses.

What Does Our Model Say?

The proven Zacks model does not conclusively show that Halliburton is likely to beat estimates in the fourth quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Halliburton has an Earnings ESP of 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 34 cents per share each.

Zacks Rank: Halliburton currently carries a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult this earnings season.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

While an earnings beat looks uncertain for Halliburton, here are some firms from the energy space that you may want to consider on the basis of our model:

Valero Energy Corporation (VLO - Free Report) has an Earnings ESP of +10.16% and a Zacks Rank #3. The firm is scheduled to release earnings on Jan 27.

CNX Resources Corp. (CNX - Free Report) has an Earnings ESP of +2.33% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Jan 27.

Chevron Corporation (CVX - Free Report) has an Earnings ESP of +6.04% and a Zacks Rank #3. The firm is scheduled to release earnings on Jan 28.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.