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?

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.

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