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Oil Service ETFs Down on Mixed Earnings & Oil Price Worries

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A lot has been said about oil price recovery over the last few months. Oil prices, in fact, recovered in late 2016 following the OPEC output cut deal signed in November.  However, rising U.S. crude production has put pressure on the space again this year. U.S. crude ETF United States Oil USO and Brent crude United States Brent Oil BNO are down about 11.6% and 9.7% so far this year (as of April 25, 2017).

Against this backdrop, a close monitoring of the energy space that deals with the extraction of oil is warranted. Presently, the Zacks Industry Rank for oil service companies is in the bottom 40% and the Sector Rank in the top 38%.

Let’s delve a little deeper into the earnings picture and see how things are shaping up for the space.

In this piece, we have considered two stocks, namely – Schlumberger Ltd. (SLB - Free Report) andHalliburton Company HAL. Among the duo, Halliburton reported earnings results on April 24 before market opened while Schlumberger reported on April 21 (read: 7 ETF Areas to Hog the Limelight in 2017).

Results in Detail

Halliburton– the second largest oil service company – came up with an earnings beat and a revenue miss. Its adjusted income per share from continuing operations (excluding special items) came in at $0.04, above the Zacks Consensus Estimate of $0.03. Halliburton posted revenues of $4.279 billion, narrowly missing the Zacks Consensus Estimate of $4.281 billion.

Schlumberger – the world’s largest oilfield services provider – came up with an unimpressive Q1. Its first-quarter 2017 earnings of $0.25 per share (excluding charges and credits) were in line with the Zacks Consensus Estimate. However, the bottom line decreased substantially from $0.65 per share earned in the year-earlier quarter. Total revenue of $6.894 billion improved from the year-ago level of $6.520 billion but missed the Zacks Consensus Estimate of $6.977 billion.

Market Impact

Post earnings, HAL was off about 0.1% in the last two trading sessions (as of April 25, 2017). SLB shares lost about 5.4% in the last five trading sessions (as of April 25, 2017).

We would like to note that Halliburton sounded optimistic about an improvement in the North American land market. In any case, the rig count has been on an uptrend. However, slower growth in the international market may turn out as a cause for concern.

Most importantly, sluggish oil prices continue to pose challenges this year too amid the questionability of the extension of the OPEC output cut deal. Plus, Russia indicated that it might raise output when the output curb deal expires.

Investors might want to know the impact of earnings results and OPEC ambiguity on ETFs that are heavily invested in these popular oil service companies. Below we highlight three oil-services ETFs with considerable allocation to SLB and HAL that could be in focus (see all energy ETFs here):

VanEck Vectors Oil Services ETF OIH

OIH invests $1.1 billion of assets in 26 holdings and devotes as much as 19.84% of the portfolio weight to SLB, followed by 13.11% in HAL. Generally, when one stock accounts for as much as 19% of an ETF's weight, its individual performance decides much of the fund’s price movement. The Zacks Rank #3 fund lost over 3.3% in the last five trading sessions (as of April 25, 2017).

iShares US Oil Equipment & Services ETF IEZ

This ETF invests about $233 million of assets in 37 securities, focusing solely on the energy world. The in-focus SLB takes up the first position here with 16.8% of holdings. HAL takes up the second position with about 9.84% of total assets. The Zacks Rank #3 (Hold) fund was down about 2.9% in the last five trading sessions (as of April 25, 2017) (read: 4 Sector ETFs to Profit from if Geopolitics Rule).

Energy Select Sector SPDR Fund XLE

XLE invests $16.6 billion of assets in 36 stocks. The fund puts 8.03% of the portfolio weight in SLB, followed by 3.19% in HAL. The fund retreated about 0.5% in the last five trading sessions (as of April 25, 2017). It has a Zacks Rank #3 with a High risk outlook (read: 4 Reasons to Buy Energy ETFs Despite Surging U.S. Output).

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