Halliburton Company HAL has been facing setbacks of late with its shares declining 15% over the past six months, more than the collective loss of 9.1% for the stocks industry.
What’s the Reason for Investors’ Apathy Toward Halliburton?
Pipeline takeaway capacity constraints in the Permian Basin seems to be the primary reason for investors’ apprehension about Halliburton’s prospects. Though the company’s all-important North America business remains robust on the back of crude pricing strength, investors were spooked after the company warned that a slowdown in the oil and gas rich-Permian Basin activity due to pipeline bottleneck will be a drag on third quarter earnings.
Another reason for investors’ bearish stance on the world's second-largest oilfield services company after Schlumberger SLB is perhaps pricing pressure in the international market, which is likely to continue for some time. Most of these long lead-time projects require lengthy contracts with oil and gas upstream players and therefore a short-term commodity price rise is not translated into higher spending immediately.
Given these concerns, analysts are bearish on Halliburton as well. The Zacks Consensus Estimate for 2018 and 2019 has declined 9.6% and 16.7%, respectively, over the last 60 days. Hence, this further limits the company’s upside potential.
Halliburton currently has a Zacks Rank #5 (Strong Sell). Moreover, the company’s expected long-term earnings per share growth rate of 8% is lower than the industry average of 12.1%. Estimates aren’t on Halliburton’s side either, with 11 analysts revising their estimates downward in the last 60 days for this year. Hence, the stock does not look promising at present.
Choosing Favorable Oilfield Service Providers
While Halliburton doesn’t appear to be an attractive pick right now, multiple tailwinds including the recovery in commodity prices have buoyed the entire space of late. With crude and natural gas prices having gone up and stabilized, investment in drilling activities (especially in North American shale) are on the rise.
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 oilfield service providers.
The oilfield service companies are also well positioned to benefit from other favorable industry trends including rebound in the highly lucrative international markets, pick up in offshore activities and increasing complexity of the projects that require more technology.
Buy These 4 Oilfield Service Stocks
We advise investors to focus on oilfield service stocks who are expected to benefit from the encouraging industry trends, supported by the recovery in oil and natural gas prices. And did we mention that each one of them carry a Zacks Rank of #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Unit Corporation UNT has a Zacks Rank #1. The 2018 Zacks Consensus Estimate for this company is 86 cents, representing some 59.3% earnings per share growth over 2017. Next year’s average forecast is $1.09, pointing to another 27% growth.
Subsea 7 S.A. SUBCY also carries a Zacks Rank of 1. Over 60 days, the company has seen the Zacks Consensus Estimate for 2018 and 2019 – both pegged at 55 cents per share – increase 66.7% and 22.2%, respectively.
Helix Energy Solutions Group, Inc. HLX has a Zacks Rank #2. The 2018 Zacks Consensus Estimate for this company is 19 cents, representing some 226.7% earnings per share growth over 2017. Next year’s average forecast is 29 cents, pointing to another 52.2% growth.
Archrock, Inc. AROC also carries a Zacks Rank of 2. The 2018 Zacks Consensus Estimate for this company is 24 cents, representing some 220% earnings per share growth over 2017. Next year’s average forecast is 50 cents, pointing to another 110.4% growth.
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Schlumberger Limited (SLB) : Free Stock Analysis Report
Subsea 7 SA (SUBCY) : Free Stock Analysis Report
Halliburton Company (HAL) : Free Stock Analysis Report
Archrock, Inc. (AROC) : Free Stock Analysis Report
Helix Energy Solutions Group, Inc. (HLX) : Free Stock Analysis Report
Unit Corporation (UNT) : Free Stock Analysis Report
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