Major oilfield service provider Halliburton Co. (HAL) is set to release its third-quarter 2014 results before the opening bell on Monday, Oct 20.
In the preceding three-month period, Halliburton delivered a negative 1.1% earnings surprise, owing to lesser activities in Venezuela and decreased drilling work in Brazil. Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
Heightened competition and cost pressures in North America on the back of higher shale production-induced activity is expected to drag down profit margin in the region. With Halliburton being heavily leveraged to North America through its market-share-leading pressure-pumping business, results may suffer on this front.
Secondly, with operations in over 70 countries and almost half of its profits coming from international markets, Halliburton is exposed to risks associated with doing business abroad. As a result, the political turmoil in Libya and Iraq during the third quarter is likely to lower the company’s profits.
Lastly, the crude price tumble over the last three months is expected to result in lower drilling activity, translating into less work for the likes of Halliburton.
Earnings Whispers?
Our proven model does not conclusively show that Halliburton is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Negative Zacks ESP: This is because the Most Accurate estimate stands at $1.10, while the Zacks Consensus is higher at $1.11. This results in an ESP of -0.90%.
Zacks Rank #3 (Hold): Halliburton carries a Zacks Rank #3 (Hold), which when combined with a negative ESP makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
While earnings beat looks uncertain for Halliburton, here are some energy firms you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:
Enbridge Energy Management LLC (EEQ) has an Earnings ESP of +25.93% and holds a Zacks Rank #1 (Strong Buy).
Tallgrass Energy Partners L.P. (TEP) has an Earnings ESP of +6.67% and holds a Zacks Rank #1.
Delek Logistics Partners L.P. (DKL) has an Earnings ESP of +5.56% and holds a Zacks Rank #1.
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