Halliburton

One of the top providers of services for the oil industry has been beating earnings projections for about three years straight now and it shows no signs of doing anything differently now. The last quarter report raised some eyebrows with a significant earnings report and some of the experts are expecting more of the same. 

Major oilfield service provider Halliburton Company (HAL) 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) has an incredible history when it comes to beating earnings estimates. Investors should note that Halliburton hasn’t missed earnings estimates since mid-2014.

mportantly, 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.

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