Are Oil-Field Service Stocks in for a Rough Quarter?

Oil-field service company Nabors Industries  (NYSE: NBR  )  recently reduced its income guidance for the second quarter. The company said it now expects operating income to be in a range of $88 million-$91 million, which is below consensus estimates of $118 million. This sent its stock down by more than 6%. 

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Interestingly, its peers had virtually no reaction to its announcement despite the fact the company pointed to intense competition being one of the problems. Nabors also suggested that bad weather negatively affected its results. Overall, the company saw lower sales of capital equipment as well as reduced service and rental activity. Further, it saw weakness particularly in its pressure pumping business in North America. 

Investors may wonder if peers like Halliburton  (NYSE: HAL  )  and Schlumberger  (NYSE: SLB  )  were pressured this quarter as well. Both companies have waded through the sluggish North American market by relying on growth overseas. If that trend continues, it should continue to mute some of the weakness Nabors experienced.

Investors won't have to wait very long: Schlumberger reports its earnings on July 19 and rival Baker Hughes  (NYSE: BHI  )  reports the same day. By the time Halliburton reports on July 22, investors should already have a pretty good idea how its quarter will turn out. The key bottom-line numbers to watch are earnings expectations, which for Schlumberger are $1.10 per share, while Baker Hughes is expected to earn about $0.65 a share. If those companies can meet or exceed these numbers, then Halliburton investors will have more confidence in its ability to meet or beat its own earnings estimate, which is currently $0.73 per share. 

The other area investors need to pay attention to are the outlooks given by each company. Nabors' gave a very cautious outlook; CEO Tony Petrello stated:

Efficiency gains appear to be consuming operator budgets more rapidly than anticipated and could result in year-end weakness absent favorable mid-year budget revisions. We remain particularly cautious in our outlook for pressure pumping. Although industry activity appears to be increasing slightly, the combination of improving pumping efficiency and increasing competitive intensity tempers our view.

If his statement is as broad-based as it appears, it could mean oil-field service stocks are in for a rough second half. That's why it will be interesting to see what Schlumberger and Baker Hughes say when both report. If that sentiment isn't echoed, it likely means Nabors' problems in the quarter were specific to its business. 

While it's possible Nabors' issues will be felt by the sector, it likely won't be a major issue -- all three peers have larger, more diversified businesses. That's likely why the reaction to Nabors' poor outlook was muted. Not only that, but with oil prices rising lately, exploration and production companies might be spending more money in the second half. 

That's why with oil prices on the rise it might be time to be on the lookout for some currently intriguing energy plays. While there are many to choose from, The Motley Fool has uncovered three stocks that should be big winners. To get those names in our special free report "3 Stocks for $100 Oil" simply click here now.

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Related Tickers

9/27/2016 4:02 PM
NBR $10.17 Down -0.13 -1.26%
Nabors Industries CAPS Rating: ****
BHI $48.06 Down -1.10 -2.24%
Baker Hughes CAPS Rating: ***
HAL $40.95 Down -0.43 -1.04%
Halliburton CAPS Rating: ****
SLB $75.33 Down -0.25 -0.33%
Schlumberger CAPS Rating: ****