The price action for oil services stocks and exchange traded funds is often beholden to oil futures’ price action. Sometimes, that is a bad thing, as was the case in 2014 when the Market Vectors Oil Service ETF (NYSEArca: OIH) slid 23.5% compared to an 8.7% loss by the Energy Select Sector SPDR (NYSEArca: XLE).
Oil services ETFs have recently rebounded in earnest with OIH, the group’s largest ETF, surging 12.3% over the past month while the iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ) and the SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES) are each up more than 10% over that time.
With analysts having taken the knife to profit and revenue forecasts, the recent appreciation by oil services ETFs could be a sign the group has bottomed and is poised for further upside. [Oil Services ETF Gains Momentum]
“This industry’s forward revenues and earnings had been at record highs in early October, but have fallen 28.5% and 58.3% in the past six months. Consensus annual forecasts imply that analysts expect revenues to fall 19.9% in 2015 after rising 6.6% in 2014, and they expect earnings to drop 48.9% following a 23.0% gain in 2014,” according to Yardeni Research.
Earlier this week, S&P Capital IQ had this to say regarding Halliburton (NYSE: HAL), the second-largest oil services provider: “We cut our ’15 EPS estimate by $1.79 to $1.17, and ’16’s by $1.64 to $1.51. We lift our 12-month target by $11 to $51, a 10X multiple of enterprise value to projected ’16 EBITDA, a premium to HAL’s historical average, but a discount to Schlumberger . Q1 operating EPS of $0.49 vs. $0.73, beat the Capital IQ consensus estimate by $0.11. HAL noted that its cost base is probably being kept higher than it might typically be during an industry downturn, given the pending Baker Hughes merger. We think HAL is a prime beneficiary when North America recovers.”