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Oilfield Services Clash: How Are SLB, HAL Placed Pre-Q1?

Zacks

With Q1 earnings season still picking up, oilfield services majors will start releasing their results this week. The year-over-year improvement in the oil pricing scenario during the quarter has increased optimism about the prospects of oilfield services companies. This is because the businesses of these firms are directly related to exploration and production activities.

In this context, the first quarter performance of Schlumberger Limited SLB and Halliburton Company HAL is likely to provide an indication about the industry as a whole.

Oil Price Movement in Q1

The market witnessed prolonged weaknesses in oil prices for more than two years owing to plentiful supply of the commodity. To combat the supply glut, OPEC decided to curb production last November – one of the most important steps taken in 2016. Non-OPEC producers like Russia followed soon after, resulting in crude crossing the $50 per barrel physiological mark.


The first two months of 2017 were the most favorable for Energy firms as crude was almost consistently over the physiological level during this period.

Meanwhile, U.S. shale producers started gathering to the oil patches to take advantage of improved oil prices. This, in turn, pushed the commodity in a comparatively bearish territory during March. In fact, oil traded below the $50 per barrel physiological during the major part of the month.

Although crude ended the January to March quarter of this year 5.8% lower but comparing from the year-ago quarter the pricing environment of commodity prices was much healthier, courtesy of the historical OPEC agreement.

How Did Oilfield Services Companies Benefit?

The fate of oilfield services firms are positively correlated with oil prices as these companies help exploration and production firms in efficiently setting up oil and gas wells. In other words, the more exploitation of oil wells, the bigger the requirement for oilfield services.

Although crude displayed year-over-year improvement, the Zacks categorized Oil & Gas-Field Services industry underperformed the S&P 500 Index during the first quarter. The industry registered a deterioration of 12.6% during the quarter compared with 5.5% improvement for the S&P 500 Index.

Nonetheless, a better oil price scenario raises optimism about the industry to recover from the downturn. Also, the earnings performance of the industry remains to be seen this time around.

Among oilfield service companies – Schlumberger, Halliburton, Baker Hughes Inc. BHI and Weatherford International plc WFT – are often referred to as the “the big four” to account for their size and scale of operations. Of these firms, Schlumberger is the largest in terms of market capitalization followed by Halliburton. Let’s take a look at how Schlumberger and Halliburton are likely to fare in the Q1 earnings season.

Schlumberger

Houston, TX-based Schlumbergeris a leading oilfield services company. It provides technology, project management and information services to the global oil and gas industry. The company is expected to report Q1 earnings before the opening bell on Apr 21, 2017.

Price Performance:

During, January–March quarter of 2017, Schlumberger’s shares lost 6.9%, outperforming the broader industry.

Earnings Whispers:

Our proven model does not conclusively show that Schlumberger is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Schlumberger is currently -4.00%. This is because the Most Accurate estimate stands at 24 cents, but the Zacks Consensus Estimate is pegged at 25 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Schlumberger carries a Zacks Rank #3.

Expected Q1 Earnings & Revenue Growth

We expect Schlumberger’s earnings to decrease 37.3% year over year. Revenues, however, are likely to increase by 7.6% from the prior-year comparable quarter.

Halliburton

Houston, TX-based Halliburton is one of the largest oilfield service providers in the world. It offers a variety of equipment, maintenance, and engineering and construction services to the energy, industrial, and government sectors.

We expect the company to report Q1 results before the opening bell on Apr 24, 2017.

Price Performance:

During the quarter, Halliburton’s stock lost 9%, outperforming the broader industry.

Earnings Whispers:

Our proven model does not conclusively show that Halliburton is likely to beat estimates this quarter.

Zacks ESP: Earnings ESP for Halliburton is currently -25.00%. This is because the Most Accurate estimate stands at 3 cents but the Zacks Consensus Estimate is pegged at 4 cents.

Zacks Rank: The company carries a Zacks Rank #3.

Expected Q1 Earnings & Revenue Growth

We anticipate Halliburton’s earnings to decline 38.5% year over year. On the flip side, revenues may inch up by almost 2%.

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