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Baker Hughes (BHI): What's in Store This Earnings Season?

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Leading oilfield services company, Baker Hughes Inc.BHI is set to report third-quarter 2015 results on Oct 21, before the opening bell.

In the last reported quarter, the company digested loss from continuing operations of 14 cents a share, which came in line with the Zacks Consensus Estimate. The bottom line also deteriorated from the year-ago adjusted profit level of 92 cents a share. The results were hampered by the steep fall in the oil price which limited demand for rigs.

Will Baker Hughes impress with its upcoming release after combating some serious challenges in the three-month period ended Sep 30? Let's see what factors might have influenced the earnings report this time around.

Past-Quarter Flashback

During the third quarter, the Houston-based oilfield services company reported a persistent fall in the U.S. rig count (number of rigs searching for oil and gas). This can be primarily attributed to an unrelenting fall in crude prices. WTI and Brent witnessed similar declines resulting from an oversupplied market. The strength of the dollar against other currencies also made oil dearer for importers, and thus contributed to the slump.

It is common knowledge that the overall operation is positively correlated with oil price. This is because, the lower the price of the commodity, the lesser will be the incentives for the upstream players to explore and drill more wells and hence weaker will be the demand for oil field services firms.

During the third quarter, crude mostly traded below $50 per barrel. In fact, sometimes the commodity even traded below $40 per barrel. Overall, the pricing environment was not favorable for upstream operations and not conducive to oilfield service players. As a result most of the drillers reduced their 2015 capital spending over 2014. Hence, Baker Hughes, which supports drilling players in setting up oil wells, is also expected to earn less in the third quarter.

Overall, Baker Hughes' activities during the quarter proved inadequate to win analysts' confidence. So the Zacks Consensus Estimate declined to a loss of 12 cents from a loss of 9 cents per share over the last 30 days.

Earnings Whispers

Our proven model does not conclusively show that Baker Hughes is likely to beat the Zacks Consensus Estimate in the third quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Baker Hughes is -15.39%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 15 cents and a loss of 13 cents, respectively.

Zacks Rank: Baker Hughes has a Zacks Rank #4 (Sell). Not only does the company have a negative Earnings ESP, we also caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the energy sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Exterran Partners LP EXLP has Earnings ESP of +19.23% and a Zacks Rank #1 (Strong Buy). The company is expected to release earnings on Nov 3.

Matrix Service Company MTRX has Earnings ESP of +12.90% and a Zacks Rank #1. The company is likely to release earnings on Nov 4.

Natural Gas Services Group Inc. NGS has Earnings ESP of +21.05% and a Zacks Rank #1. The company is anticipated to release earnings on Nov 5.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

BAKER-HUGHES (BHI): Free Stock Analysis Report

MATRIX SERVICE (MTRX): Free Stock Analysis Report

EXTERRAN PTNRS (EXLP): Free Stock Analysis Report

NATURAL GAS SVC (NGS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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