Can Halliburton Company’s Winning Streak Continue? (HAL)

Major oilfield service provider Halliburton Company (HAL) is set to release its fourth-quarter 2016 results before the opening bell on Monday, Jan 23. Halliburton’s stock performance has been pretty exciting lately. Shares are at fresh highs these days, and the stock has recovered nicely from its rough start to 2016 when oil prices fell to a 12-year low.

In fact, Halliburton has run up 22% over the past 6 months thanks to commitments by OPEC and non-OPEC players to slash production targets, but this report will be a test if this trend can continue into 2017 as well.

The world’s second-largest oilfield services company after Schlumberger Limited. (SLB) also 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 Co. Price and EPS Surprise

Halliburton Co. Price and EPS Surprise | Halliburton Co. Quote

Further, the company is in the top 32% from an industry rank look, so the overall fundamentals for the segment appear to be relatively strong.

Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

The oil services companies (like Halliburton) — providers of technical products and services to drillers of oil and gas wells — kicks off what is expected to be a relatively good earnings season for U.S. energy firms.

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.

We also appreciate Halliburton’s cost-cutting initiatives (like reduced headcount, consolidating facilities) in the midst of weak oil prices over a length of time. As of the end of third quarter, the company has successfully implemented on its plan of pruning annual costs by $1 billion, which Halliburton initially expected to achieve only by the end of 2016. 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

On the flip side, Halliburton has already warned that fourth quarter activity is likely to be weak due to holiday and seasonal weather-associated disruptions. Moreover, pricing pressure is expected to continue over the near-term with the oil service companies dishing out some big concessions to producers in recent years.

Add to this project delays and job cancellations, which are likely to translate into margin contraction.

Therefore, notwithstanding the nice bump in oil prices, it will take some time for service providers to translate it into earnings gain.

The Bottom Line on HAL: An Uncertain Outlook Means Caution 

It is hard to bet against Halliburton when it comes to beating earnings estimates, given the company’s impressive track record. Moreover, the company’s recent share price rally may render it attractive to the eyes of some investors, particularly those that are in the practice of buying securities with strong momentum.

But with contract rates yet to improve sufficiently and a deteriorating credit metrics, it is hard to get excited by Halliburton ahead of their report either.

The failed merger with Baker Hughes Incorporated (BHI) meanwhile literally burned a hole in Halliburton’s stomach as it had to shell out $3.5 billion in termination fees – one of the highest in U.S. corporate history.

Earnings Whispers

Our proven model does not conclusively show that Halliburton will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate both stand at 2 cents.

Zacks Rank: Halliburton has a Zacks Rank #1. Though a Zacks Rank #1 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

While earnings beat looks uncertain for Halliburton, here is one firm from the energy space you may want to consider on the basis of our model, which shows that it has the right combination of elements to post earnings beat this quarter: RPC, Inc. (RES) has an Earnings ESP of +7.14% and a Zacks Rank #1. The company is likely to release earnings on Jan 25.

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Baker Hughes Inc. (BHI): Free Stock Analysis Report

Schlumberger NV (SLB): Free Stock Analysis Report

Halliburton Co. (HAL): Free Stock Analysis Report

RPC Inc. (RES): Free Stock Analysis Report

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