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Earnings: As Go Crude Prices, So Goes HAL?

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April 22, 2016
Earnings: As Go Crude Prices, So Goes HAL?

Halliburton (HAL), among the world’s biggest energy industry providers of products and services, kicks off next week’s earnings parade with Q1 results ahead of the bell Monday.

Taking into account how much HAL relies on the ebbs and flows of crude-oil prices, investor expectations are low. Consider how tight the ties to crude-oil prices are to oil-field services giants like HAL: Year to date, crude and the correlation to the S&P 500 (SPX), something we note quite frequently, is just under 90. When it comes to crude to HAL, the correlation is 95%!

So, Q1 is not going to be a pretty one for HAL, say some analysts. The lower the price of crude, the fewer incentives for oilers to do anything innovative, much less explore and drill, which can leave upstream-operations and oilfield-service players like HAL in a jam.

A Steep Slide

As a result, the top and bottom lines of HAL will likely suffer deep declines. Analysts reporting to Thomson Reuters are pegging a per-share profit of just $0.05, a white-knuckled 90% dive from $0.49 a share a year ago, against a 41% revenue retrenchment to $4.2 billion from $7.1 billion last year. 

On the conference call, analysts will want to know what expectations are for crude ahead and what’s up with the lawsuit filed by the Department of Justice to block its merger with Baker Hughes.

Short-term options traders have priced in a potential 4% share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform from TD Ameritrade.

Options trading has been relatively sparse on HAL going into earnings. Going out to the May monthly, buyers have been active at the 42-strike calls and 35-strike puts. The implied volatility is at a low 20th percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

hal earnings report

FIGURE 1: HAL BOUNCES BACK.

Since bottoming at a near four-year low in mid-February, HAL shares have surged by better than 40%. Chart source: thinkorswim® by TD Ameritrade. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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