After Earnings, How Are Oil Service ETFs Looking For 2015?
The oil price slide, which started to hit global headlines in the second half of 2014, has reached such an alarming stage that investors are fervently looking out for the earnings performance of the oil service companies before passing their verdict on investment in energy stocks. The return of worries in the Euro zone, poor data points from Japan and China and no production cut led the commodity to plummet about 60% over the past six months. Presently, oil prices are hovering around five-and half year lows raising uncertainty among producers and forcing them to adopt cost-cutting measures. Though oil price is arguably yet to hit a bottom, the Zacks Industry Rank for the said space is not. Presently, it is in the bottom 9%. Thanks to this outright bearish backdrop, the sector tops investors’ attention list this earnings season as all will be interested to know the direction of oil flow. Let’s delve a little deeper into the earnings and see how things are shaping up for the space. In this piece, we have considered three stocks, namely – Baker Hughes Inc. (NYSE: BHI ) , Schlumberger Ltd. (NYSE: SLB ) and Halliburton Company (NYSE: HAL ) . Among the trio, Schlumberger reported its earnings on January 15 followed by Baker Hughes and Halliburton on January 20. Results in Detail Halliburton – the second largest oil service company – came up with earnings and revenue beat in Q4. Earnings of $1.19 per share from continuing operations beat the Zacks Consensus Estimate of $1.11. Halliburton’s revenues of $8.8 billion reflected a 15% year-over-year improvement and 0.1% beat over the Zacks Consensus Estimate. Shares were up 1.79% in the key trading session following the declaration of results. Improved stimulation work in the U.S. and drilling operations in the Middle East/Asia region led to the beat despite the oil price carnage. Baker Hughes ‘ adjusted earnings from continuing operations of $1.44 a share beat the Zacks Consensus Estimate of $1.08 and improved from the year-ago figure of $1.02 per share. Its revenues of $6.64 billion grew 13.0% and surpassed the Zacks Consensus Estimate of $6.38 billion. BHI too added about 1.24% following the release. Schlumberger – the world’s largest oilfield services provider – came up with a mixed Q4 by reporting adjusted earnings of $1.50 per share (excluding special items), which edged past the Zacks Consensus Estimate of $1.47 and the year-ago number of $1.49. However, the total revenue of $12.6 billion expanded 6.2% year over year but fell shy of the Zacks Consensus Estimate of $12.7 billion. Still, SLB has advanced more than 6% following its results only to slide 1.05% on January 20 as the company decided to slash 9,000 jobs . However, this is not something new for an oil producer, as HAL and BHI are considering such measures too. Market Impact The space got mixed signals thanks to varied performances. The merger between Halliburton and Baker Hughes as well as decent earnings have gone in favor of the companies as this would help the duo to withstand the current slump more efficiently. While a single stock pick is always an option to play earnings, we could see a deep impact on ETFs that are heavily invested in these popular oil service companies. Notably, the ETF route will help investors to mitigate one company’s average performance with the other company’s stellar results. Below, we have highlighted three oil-services ETFs with considerable allocation to SLB, HAL and BHI that could be in focus following oil-service earnings: iShares U.S. Oil Equipment & Services ETF (NYSEARCA: IEZ ) This ETF – tracking the Dow Jones U.S. Select Oil Equipment & Services Index – invests about $336 million of assets in 53 securities, focusing solely on the energy world. In-focus SLB takes up the first position here with 21.1% of holdings. Generally, when one stock accounts for as much as 21% of an ETF’s weight, its individual performance decides much of the fund’s price movement. HAL takes up the second position with about 9.3% of total assets while BHI gets the fourth position with about 7.4% share. The fund lost about 7.9% in the year-to-date frame (as of January 20, 2015) thanks to the recent energy equity sell-off. However, following the release of the earnings by the trio, IEZ has added about 4.3% (as of January 20, 2014). IEZ is a cheaper fund, charging 0.43% for its expense ratio. The fund has a Zacks ETF Rank #4 (Sell) with a High risk outlook. Market Vectors Oil Services ETF (NYSEARCA: OIH ) OIH tracks the Market Vectors US Listed Oil Services 25 Index. The index invests $978.0 million of assets in 26 holdings. OIH devotes as much as 19.7% of the portfolio weight to SLB, followed by 11.6% in HAL. BHI gets the fourth spot with about 5.38% of the total allocation. OIH is cheap in the space with an expense ratio of 0.35%. The fund is down about 7.8% so far this year (as of January 20, 2015) but has returned more than 4.3% since January 15. OIH has a Zacks ETF Rank #4 with a High risk outlook. PowerShares Dynamic Oil & Gas Services Fund (NYSEARCA: PXJ ) This product offers exposure to 30 energy stocks with BHI, SLB and HAL at the first, second and third positions, respectively, allocating more than 5% of total assets to each. PXJ tracks the Dynamic Oil & Gas Services Intellidex Index and has amassed about $56 million thus far. The ETF charges 61 bps in fees, so it is a bit more expensive than some of its counterparts in the space. The fund has added about 3.8% following the earnings release of the three companies, but has lost about 10% year to date. PXJ has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.