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Can Completion & Production Boost Halliburton's Q4 Earnings?

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We expect Halliburton Company’s HAL Completion and Production segment — which makes up around 65% of the oilfield service provider’s total revenue and more than 80% of its operating income — to post improved results in fourth-quarter 2017. This could help Halliburton notch its 14th consecutive quarterly outperformance when it reports on Monday, Jan 22.

(See more in Is Halliburton Poised for a Beat This Earnings Season?)   

The Completion and Production segment supplies cementing, stimulation, intervention and completion services. The unit comprises of production enhancement services, completion tools and services, and cementing services.

A Look at Halliburton’s Completion and Production Performance in Q3

Completion and Production revenue grew 12.9% sequentially and 62.5% from the year-ago level. Operating income from the segment was $525 million, significantly higher than the $24 million a year ago. The division also improved from previous quarter’s income of $397 million, helped by better utilization and pricing in the North American land market -- especially in Halliburton’s pressure pumping, completion tools and cementing product service lines.

Oil Tailwinds to Boost Q4 Activity

With U.S. rig count falling to record levels in 2016, 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.

The U.S. oil benchmark wrapped up a strong quarter amid continued declines in domestic inventories and an improving supply-demand narrative. With fundamentals pointing to a tighter market, oil ended 2017 at $60.42 per barrel – the first settlement above $60 since June 2015. A year ago, crude futures hovered around the $53 per barrel mark.

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 particular, the North American land market is improving rapidly, driven by increased utilization and pricing -- particularly for pressure pumping.

Completion and Production Unit to Benefit

Consequently, the Zacks Consensus Estimate for Halliburton’s largest segment’s fourth-quarter revenue is pegged at $3,641 million, 60.5% higher than the reported figure in the corresponding quarter of 2016 and up 3% sequentially.

And with the Zacks Rank #3 (Hold) company seeing continued pricing strength, its operating income for the division is expected to jump to $570 million from just $85 million in the fourth-quarter of 2016 and representing a 9% sequential increase.

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

Overall Earnings & Revenue Projections

Notably for the world's second-largest oilfield services company after Schlumberger SLB, the Zacks Consensus Estimate for earnings of 46 cents reflects a massive growth from the prior-year quarter profit of 4 cents. Also, the Zacks Consensus Estimate for sales of $5,574 million indicates a 38.6% increase on a year-over-year basis.

Our Take

The improving oil price outlook and strengthening North American market conditions have led to strong demand for Halliburton’s completions equipment and services. This will support the company’s top and bottom-line growths.

Earnings Schedules of Other Major Oilfield Service Providers

Among the major players, Schlumberger is scheduled to release today, while Baker Hughes, a GE company will report on Jan 24. Weatherford International plc WFT, another biggie, will report fourth-quarter earnings early next month.

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