CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.

Oil prices keep hurting Halliburton

With the energy industry in the doldrums, Halliburton is expected to suffer when it announces Q3 earnings. Yet have losses been overpriced in?

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
An oil pump
Source: Bloomberg

With Halliburton releasing its latest Q3 earnings figures on 19 October, many investors will turn once more to the world’s second biggest oilfield services provider to gauge how it is faring within a highly turbulent period for the industry.

North American operations have enjoyed the boom of shale fracking yet US operations are now suffering more than most, owing to the impact of historically low oil prices on industry activity. As the impending merger with Baker Hughes drags on, investors on both sides are left wondering whether they’re getting a good deal, as highlighted by the possible involvement of ValueAct, the activist investors who have a 5.3% stake in Baker Hughes. Their involvement could push the price of the merger higher, in turn hurting the Halliburton share price. However, as the industry struggles, the enhanced size of a new merged company would enable the firm to gain further market share.

North American revenues currently account for circa 50% of the firm’s total, and thus investors will hope the drop-off seen in Q2 (-38%) will not be repeated or amplified. Nevertheless, the data from North America was actually better than expected in Q2, and as a result another outperformance will be welcome amid the current climate.

For the earnings figures, expectations with most of the industry are understandably low. Adjusted EPS is expected to come in at $0.284, following the surprisingly resilient $0.44 posted in Q2. Similarly, sales are predicted to fall from $5.919 billion to $5.659 billion. The two schools of thought are that this could be a car crash, or else given such negative expectations, much of the downside risks have been mitigated for Halliburton’s shares.

Analysts certainly seem to remain positive about the firm, with 26 buys, eight holds and just one sell recommendation.

From a technical perspective, the price has managed to catch a break of late, with it rallying through both $39.31 and the 50-day SMA, in a move which replicates the strength of the recent oil rally. However, it is worth bearing in mind that the price has since reached the crucial resistance point of $40.92, which represents a double-bottom neckline. The inability to sustain gains through that level of late points to clear resistance, and thus I await resolution of the current roadblock.

A daily close above $40.92 points towards the $44 mark. However, watch out for reversal signals below resistance as there is always the possibility of some weakness at a major level like this. The stochastic oscillator is clearly rounding off in a bearish manner, while the MACD histogram has reached a 2015 high, highlighting how extended this market is currently. Until we see that break I am looking for a pullback towards $39.31, yet will swiftly switch allegiances should the price break above $40.92.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.  Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. 

CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.