After Earnings, How Are Oil Service ETFs Shaping?

By | January 28, 2016

Scalper1 News

A lot is being said about oil for the last one-and-a-half years. Almost every day, the commodity is hitting headlines for all wrong reasons. The acute and persistent plunge in oil prices and no hope for immediate recovery is actually pushing down the global market. The worry has reached such a delirious stage that jittery investors are fervently keeping an eye on the earnings performance of the oil service companies before taking their call on any investment in energy stocks. After all, the investing world is busy figuring out whether oil has hit a bottom after a horrendous sell-off and is due to turn around soon, benefitting the broader energy sector. The Zacks Industry Rank for the said space is presently in the bottom 17%. Thanks to this outright bearish backdrop, the sector tops investors’ attention list this earnings season as everyone will be interested in the health of the oil companies. Let’s delve a little deeper into the earnings scenario and see how things are shaping up for the space. In this piece, we have considered two stocks, namely – Schlumberger Ltd. (NYSE: SLB ) and Halliburton Company (NYSE: HAL ) . Among the duo, Schlumberger reported earnings results on January 21 after the market closed while Halliburton reported on January 25 before the market opened. Results in Detail Halliburton – the second largest oil service company – came up with an earnings beat though revenues missed in Q4. Earnings of $0.31 per share from continuing operations beat the Zacks Consensus Estimate of $0.24. Improved stimulation works in Kuwait and Australia helped the company to beat on the bottom line despite rock-bottom oil prices. The bottom line fell considerably from fourth-quarter 2014 earnings of $1.19. However, Halliburton’s revenues of $5.08 billion reflected a 42.1% year-over-year improvement but a 0.3% miss the Zacks Consensus Estimate. Shares were down 4.1% in the two trading sessions following the declaration of results. Schlumberger – the world’s largest oilfield services provider – came up with a mixed Q4. Adjusted earnings of $0.65 per share (excluding special items) edged past the Zacks Consensus Estimate of $0.63 but fell from the year-ago number of $1.50. Continued decline in rig activity amid the oil price carnage was behind the year-over-year decline. Total revenue of $7.7 billion declined 38.9% year over year but was in line with the Zacks Consensus Estimate. SLB advanced more than 6% in the trading day following the results. Market Impact The space got mixed signals thanks to not-extremely-downbeat performances as many expected from these oil service giants. We would like to note that both companies currently have a Zacks Rank #5 (Sell), solely because of poor industry fundamentals. Still investors might want to know the impact on ETFs that are heavily invested in these popular oil service companies. Below, we have highlighted three oil-services ETFs with considerable allocation to SLB and HAL that could be in focus following oil-service earnings: iShares US Oil Equipment & Services ETF (NYSEARCA: IEZ ) This ETF – tracking the Dow Jones U.S. Select Oil Equipment & Services Index – invests about $195.7 million of assets in 41 securities, focusing solely on the energy world. In-focus SLB takes up the first position here with 19.41% of holdings. 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. HAL takes up the second position with about 9.26% of total assets. The fund gained about 1.2% in the last three trading sessions (as of January 26, 2016) following the release of the earnings by the duo. IEZ charges 0.45% for its expense ratio. The fund has a Zacks ETF Rank #5 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 $924.7 million of assets in 26 holdings. OIH devotes as much as 20.44% of the portfolio weight to SLB, followed by 11.66% in HAL. OIH is cheap in the space with an expense ratio of 0.35%. The fund returned about 0.9% in the last three trading sessions (as of January 26, 2016). OIH has a Zacks ETF Rank #5 with a High risk outlook. PowerShares Dynamic Oil & Gas Services Fund (NYSEARCA: PXJ ) This product offers exposure to 30 energy stocks with SLB and HAL at the second and fourth positions, respectively, allocating 5.5-6% of total assets to each. PXJ tracks the Dynamic Oil & Gas Services Intellidex Index and has amassed about $31.9 million thus far. The ETF charges 63 bps in fees, so it is a bit more expensive than some of its counterparts in the space. The fund has added about 0.1% following the earnings release of the two companies. PXJ has a Zacks ETF Rank #5 with a High risk outlook. Original Post Scalper1 News

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