OIH VanEck Oil Services ETF

Though still remaining in the bottom 7% zone in the Zacks Industry Rank list, the oil-field services industry moved up 9 places last week. Lower oil prices are definitely a concern in the space, which seems poised for a decent growth on the revival of the global economy (read: Play the U.S. Oil Boom with These Energy ETFs).

Two sector bellwethers, Schlumberger Ltd. (SLB) and Baker Hughes (BHI) came out with their Q1 earnings results on April 17 though they witnessed different pricing impacts following their earnings releases.

Schlumberger 1Q Earnings in Detail

The world's largest oilfield services provider doled out a mixed Q1 by reporting adjusted earnings of $1.21 per share (excluding special items) beating the Zacks Consensus Estimate by a penny and improving from the year-ago number of $1.01. Total revenue of $11.2 billion was up 6.3% year over year but fell short of the Zacks Consensus Estimate of $11.5 billion.

Contribution from international market remained muted. Geo-political tension in Russia, slowdown in China and severe winter weather in North America which disturbed drillings partially outweighed the company’s growing new technology sales and integration activity. Also, there was no twist in the guidance point of view as the one of projection remained intact for the most part (read: A Beginner's Guide to Alternative Energy ETFs).  

Baker Hughes 1Q Earnings in Detail

Baker Hughes’ first quarter 2014 adjusted earnings from continuing operations of $0.8 a share, which beat the Zacks Consensus Estimate of $0.79 thanks to improved North America business, also grew 29.2% year over year.

 Its total revenue of $5.73 billion jumped 9.6% from the year-ago level beating the Zacks Consensus Estimate of $5.71 billion. Recommencement in Iraq activity and surging demand for high technology services in Africa, the Middle East and Asia Pacific led this oilfield stock’s outperformance.

Market Impact

Quite expectedly, Schlumberger‘s mixed results had an adverse impact on its prices, as SLB shares were down 1.02% on the day of the earnings release with somewhat elevated volumes compared to a normal day while Baker Hughes’ shares were up 3.05% on all-star performance in the quarter. The volumes traded on Baker Hughes’ earnings day was twice a normal day.

In fact, the overall energy sector perked up on BHI’s earnings and bullish underlying fundamentals which overruled SLB’s top-line weakness. Also, increased trading could have a huge impact on ETFs that are heavily invested in these two renowned oil-service companies.

Below, we have highlighted three oil-services ETFs with considerable allocation to SLB and BHI that could see some gains in a few upcoming trading sessions (read: 3 Energy ETFs Marching Higher in the Past Week):

iShares US Oil Equipment & Services ETF (IEZ)

This ETF – tracking the Dow Jones U.S. Select Oil Equipment & Services Index – invests about $546.9 million in assets in 52 securities, focusing solely on the energy world. In-focus SLB takes up the first position here with 21.14% of holdings while BHI occupies the fourth position with about 6.57% of holdings. IEZ is a cheaper fund, charging 0.45% in expenses. This ETF gained about 0.58% in Thursday’s trading. The fund has surged 7.76% so far this year.

Market Vectors Oil Services ETF (OIH)

OIH tracks the Market Vectors US Listed Oil Services 25 Index. The index invests $1.37 billion of assets in 26 holdings. OIH devotes as much as 20.62% weight to SLB and 5.24% to BHI. OIH is cheap in the space with an expense ratio of 0.35%. The fund was up about 0.35% on the day, and has returned about 6.30% so far this year.

PowerShares Dynamic Oil & Gas Services Fund (PXJ)

This product offers exposure to 30 energy stocks with BHI and SLB at the third and fourth positions, allocating 5.11% and 5.09% of total assets. PXJ tracks the Dynamic Oil & Gas Services Intellidex Index and has amassed about $134.4 million thus far.  The ETF charges 62 bps in fees which makes it an expensive choice in the energy ETF space.

The fund added about 0.76% on the day of SLB and BHI's earnings releases and 7.08% in year-to-date frame.  

Bottom Line

Though Schlumberger’s missed on revenues, the ETFs with big holdings in it did not suffer, and instead benefited from BHI’s huge gains. Although the prospect of bullishness in the oil-field services sector is still not quite capable thanks mainly to the supply glut issues, the sector will likely gain in the near term on nagging Russian geo-political concerns, supply outages in Nigeria and Libya, and signs of recovery in the global economy (read: 3 Energy ETFs to Buy on the Ukraine Crisis).

So, risk-tolerant investors can buy the aforementioned ETFs on the still-muted sentiment surrounding the space. The products seem to be undervalued as well at the current level with trailing four quarters’ P/E ratios of OIH and IEZ falling behind the SPDR S&P 500 (SPY), suggesting they should be solid value picks too.  

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BAKER-HUGHES (BHI): Free Stock Analysis Report
 
ISHARS-US OIL E (IEZ): ETF Research Reports
 
MKT VEC-OIL SVC (OIH): ETF Research Reports
 
PWRSH-DYN OIL&G (PXJ): ETF Research Reports
 
SCHLUMBERGER LT (SLB): Free Stock Analysis Report
 
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