Back to top

Why an Earnings Beat is Likely for Halliburton (HAL) in Q3?

Read MoreHide Full Article

Major oilfield service provider Halliburton Company (HAL - Free Report) is scheduled to report its third-quarter earnings on Monday, Oct 23, before market opens.

In the preceding three-month period, the company delivered a positive earnings surprise of 21.1%. Moreover, both Halliburton’s segments – Completion and Production, as well as, Drilling and Evaluation – reported revenues slightly better than our estimates thanks to improved utilization and pricing gains in North America.

On a further encouraging note, the world's second-largest oilfield services company after Schlumberger Limited (SLB - Free Report) has an incredible history when it comes to beating earnings estimates. Investors should note that Halliburton hasn’t missed earnings estimates since mid-2014, as you can see in the chart below:

Halliburton Company Price and EPS Surprise

 

Halliburton Company Price and EPS Surprise | Halliburton Company Quote

Importantly, this Houston, TX-based provider of technical products and services to drillers of oil and gas wells is likely to maintain this trend in the third quarter. Evidently, multiple tailwinds including the recovery in commodity prices have buoyed the entire space.

With U.S. activity accelerating and margins set to remain strong, Halliburton’s underlying results are likely to come ahead of our expectations. The positive sentiment surrounding the stock can be gauged from the fact that the estimate revision trend has been solid with eight upward estimate revisions and just one down in the last two months.

Consequently, the stock has done better than the peer group so far this year; it is down 17.5% in 2017 as against 30.2% loss for the Zacks Oil and Gas Field Services industry.

 

Let’s delve deep to find out the factors likely to impact Halliburton’s third-quarter results.

A Likely Positive Surprise?

With U.S. rig count falling to record levels last year, oilfield services players (like Halliburton) were hit hard. Unprecedented declines in activity levels and a sharp fall in upstream spending led to lower revenues and pricing headwinds.

However, as commodity prices steadily improve and drilling activities pick up, the market for services companies is on the mend. Though we are still not anywhere near the activity highs seen in 2014, spending on exploration projects have experienced a much-awaited rebound. The energy explorers, buoyed by the jump in commodity prices, are set for improving sales and earnings – a part of which is likely to be pocketed by the long-struggling oilfield service providers.

In fact, during last quarter’s earnings release, the company also sounded optimistic in its view that the North American land market is improving rapidly, driven by increased utilization and pricing - particularly for pressure pimping.

As a proof of the resurgence in activities, the Zacks Consensus Estimate for third-quarter Completion and Production revenue is pegged at $3,430 million, much higher than $3,132 million reported in the second quarter of 2017. Sales in the Drilling and Evaluation unit is forecasted to be $1,888 million, more than the prior quarter figure of $1,825.

We also appreciate Halliburton’s successful cost-management initiatives in the midst of weak oil prices over a length of time. Last year, the company successfully implemented on its plan of pruning annual costs by $1 billion. In fact, Halliburton has used the challenges prevailing in the industry to its advantage, mainly by offering low cost solutions that aids producers in churning out more by investing less.

What Does Our Model Say?

Our proven model too shows that Halliburton is likely to beat earnings in the to-be-reported quarter because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP for this company stands at +0.08%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Halliburton carries a Zacks Rank #3 (Hold) which, when combined with a positive ESP, makes us confident of an earnings beat.

Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. On the other hand, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

Which Other Energy Companies Have Positive Surprise in Store?

Halliburton is not the only energy firms looking up this earnings season. Here are some companies from the space which, according to our model, also have the right combination of elements to post earnings beat this quarter:

National Oilwell Varco Inc. (NOV - Free Report) has an Earnings ESP of +10.91% and a Zacks Rank #2. The energy equipment maker is expected to release earnings results on Oct 26. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Suncor Energy Inc. (SU - Free Report) has an Earnings ESP of +29.60% and a Zacks Rank #2. The Canadian integrated energy company is anticipated to release earnings on Oct 25.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>



More from Zacks Analyst Blog

You May Like