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Big Oil Stocks – Will SLB & HAL Earnings Impress?

Can HAL & SLB keep up their torrid growth?


With fracking and advanced drilling techniques becoming the norm — both onshore and off — the firms that do all of that heavy lifting are set to win big over the longer term. And there are none bigger than Halliburton (HAL) and Schlumberger (SLB). Both remain the undisputed kingpins of fracking and oil services.

oil-rigThat is … if their earnings and sales growth continue.

As both SLB and HAL are set to report their critical third-quarter earnings reports in the next few days, investors can gauge whether or not the pair is still worthy of their hard-earned savings. Expectations are running high, and both companies have a lot to prove.

Surging Earnings Growth

As the world continues to embrace advanced drilling techniques, oil service stocks like Halliburton and Schlumberger have been on a tear. Shares of SLB stock now sit near two-year highs, while HAL isn’t very far behind. Given the pair’s torrid growth over the last few years as fracking has taken hold, the only question left is whether their shares are worth the high prices.

According to analysts, all signs point to yes.

With Schlumberger set to report Friday, analysts have gotten even more enthusiastic about the service stocks’ prospects. So far, average analyst projections have risen about 3 cents per share for the quarter, while full 2013 and 2014 earnings estimates have been upped by about 2.5%.

Much of that growth is set to come from the firm’s international focus. SLB has seen higher sales and demand for its products from international markets such as China and Middle East. That has helped it increase margins and profits. According to Forbes, the energy services giant has generated an average 12% year-over-year growth in profit over the past four quarters. Analysts expect about 15% profit growth this quarter.

As for its main rival, Halliburton, things are just a rosy.

While its focus on North America has hurt it in past quarters — due to the slowdown of natural activity — HAL seems poised to win big now that drilling activity has resumed both on land and in the Gulf of Mexico. The firm currently receives more than half of its revenues from our borders. Rising activity in the Bakken shale and the Gulf will benefit the leader in fracking and well-completion services.

Based on bullish trends in energy CAPEX spending, analysts estimate that HAL should see 23.13% growth in earning per share for the third quarter versus a year ago. More importantly, full-year estimates for 2013 and 2014 are considerably higher. It’s no wonder why the oilfield services provider has been the subject of recent upgrades and higher price targets. The latest was a Raymond James upgrade from “market perform” to “outperform.”

The Bottom Line

Both Halliburton and Schlumberger are poised to continue impressing the markets and investors with their earnings. High drilling activity — both onshore and off, here and abroad — will ultimately propel both stocks higher in the future. Yet, shares of both still remain reasonably priced — with HAL and SLB trading for forward P/E ratios of just 12 and 15.76, respectively.

Given the increasingly higher estimated earnings for the pair, those share prices seem like downright bargains. Snatch them up while you can.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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