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Halliburton’s Results Will Paint Picture of Oil-Rigging Recovery

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July 17, 2015
earnings preview Halliburton Morgan Stanley

The oilfields-service providers have been on a slippery patch as plummeting oil prices have put the brakes on exploration and production activities, which will likely be evident when Halliburton, the second-largest player, releases second-quarter earnings before the market opens Monday.  

Analysts expect Halliburton to turn in 30 cents a share profit on revenues of $5.8 billion, well off the year-ago period’s record $8.1 billion topline and following a steep decline in first-quarter results.

If Halliburton beats those expectations, which many expect it will, it will offer deeper insight into the recovery of the struggling oil-rigging business. In its first-quarter release, it noted that “Industry prospects will continue to be challenged in the coming quarters, and visibility to the ultimate depth and length of this cycle remains uncertain.”

But on Thursday, Schlumberger, the world’s largest oilfields-services firm, outpaced its earnings expectations, though they dove 30%, and offered recovery hope: “We believe that the North American rig count may now be touching the bottom, and that a slow increase in both land drilling and completion activity could occur in the second half of the year,” Chief Executive Paal Kibsgaard said in its earnings release. More than 50% of Halliburton’s revenues are gleaned from North American operations.

The company is expected to update investors on the progress of its $35 billion bid to buy smaller rival Baker Hughes, which has roiled anti-trust regulators across the globe. The two agreed earlier this month to extend the Dept. of Justice’s review of the acquisition until Nov. 25 and its closing until Dec. 1. They’re also in negotiations with the European Commission and other foreign regulators. Should regulators rebuff the deal, Halliburton is on the hook for a $3.5 billion breakup fee, an unusually hefty sum. 

While most analysts believe the two will overcome the antitrust hurdles, not all investors agree. Halliburton’s stock has tumbled some 18% since the friendly takeover was announced in November, and there have been three times as many short-sellers in the stock in recent sessions. Based on current implied volatility levels, traders are looking for a 3% move on the stock and we’ve been seeing 39 puts and 42 calls for August expirations.

Also reporting ahead of the bell Monday is financial services giant Morgan Stanley. The struggle for financials this quarter has been beating the topline.

Analysts, on average, are looking for a per-share profit of 74 cents on revenues of $9.1 billion, though some are modeling 75 cents a share on revenue of $9.2 billion. Either way, it will be more than 10% below year-ago results.

Trading revenues are expected to rise from easy comparisons to year-over-year fixed income and secondary equity activity in international markets. The stock has appreciated better than 22% on a year-over-year basis, far outrunning the Dow’s roughly 6% increase. Implied volatility is at the lowest quarter percentile we’ve seen so far in the last 52 weeks.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

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