A lot is being said about the past few week’s oil price disaster stemming from coronavirus concerns. Weak demand and supply glut amid the continuation of the virus crisis have dampened the oil demand outlook.
Against this backdrop, a close monitoring of the energy space, which deals with oil field services, is warranted. Despite the severity of the situation, oil service companies now belong to a favorable Zacks industry (placed at the top 31% of total 250+ industries in the Zacks universe).
Let’s delve a little deeper into the earnings picture and see how things are shaping up for the space.
In this piece, we have considered two stocks, namely — Schlumberger (NYSE:SLB) Ltd. SLB and Halliburton Company (NYSE:HAL) HAL — which reported earnings results on Jul 24 and Jul 20, respectively. HAL added 12.4% last week while SLB gained about 4.7%.
Schlumberger — the world’s largest oilfield services provider — came up with a mixed Q2. Second-quarter 2020 earnings of 5 cents per share (excluding charges and credits) surpassed the Zacks Consensus Estimate of break-even earnings. However, the bottom line declined from 35 cents a year ago. The oilfield service giant recorded total revenues of $5,356 million, which missed the Zacks Consensus Estimate of $5,441 million and declined 35% from the year-ago quarter’s $8,269 million.
Better-than-expected earnings can be attributed to resilience in the company’s international business despite the coronavirus-induced unfavorable business environment. The company’s cost-reduction initiatives, comprising headcount rationalization and furloughs, also aided the bottom line. However, a plunge in OneStim pressure-pumping activity in the land market of North America acted as a dampener.
Halliburton delivered better-than-expected second-quarter 2020 earnings as both the Completion and Production segment and the Drilling and Evaluation segment outperformed the Zacks Consensus Estimate.
The company reported earnings of 5 cents per share. The Zacks Consensus Estimate was of a loss of 11 cents per share. However, the bottom line tumbled 85.7% from the year-ago figure of 35 cents per share due to lower revenue contribution from North America activities.
Revenues of $3.2 billion slumped 46% from the year-ago quarter’s sales and missed the Zacks Consensus Estimate of $3.26 billion. Further, North America revenues plunged 68.5% year over year to $1 billion. Moreover, revenues from Halliburton’s international operations fell 19.2% from the year-ago period to $2.1 billion.
Market Impact
Investors might want to know the impact of earnings results on ETFs that are heavily invested in these popular oil service companies. Below we highlight three oil-services ETFs with considerable allocation to SLB and HAL that could be in focus (see all energy ETFs here):
VanEck Vectors Oil Services ETF OIH
OIH invests $607.7 million of assets in 25 holdings and devotes as much as 21.2% of the portfolio weight to SLB, followed by 10.4% in HAL. Generally, when one stock accounts for as much as 19% of an ETF's weight, its individual performance decides much of the fund’s price movement. OIH gained 8.9% in the past five days, reflecting the duo’s results.
iShares US Oil Equipment & Services ETF IEZ
This ETF invests about $133.7 million of assets in about 24 securities, focusing solely on the energy world. The in-focus SLB takes up the first position here with 22.5% of holdings. HAL takes up the second position with about 21.7% of total assets. The fund added about 8.6% in the past five days.
Energy Select Sector SPDR Fund XLE
XLE invests about $10.52 billion of assets in about 25 stocks. The fund puts 4.2% of the portfolio weight in SLB. It added about 2.2% in the past five days.
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Schlumberger Limited (SLB): Free Stock Analysis Report
Halliburton Company (HAL): Free Stock Analysis Report
Energy Select Sector SPDR ETF (NYSE:XLE): ETF Research Reports
iShares U.S. Oil Equipment Services ETF (IEZ): ETF Research Reports
VanEck Vectors Oil Services ETF (OIH): ETF Research Reports
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