The Zacks Analyst Blog Highlights: Baker Hughes, Halliburton, Schlumberger, Emerge Energy Services and Tiffany

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Sep 16, 2014, 09:30 ET

CHICAGO, Sept. 16, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Baker Hughes Inc. (NYSE:BHI-Free Report), Halliburton Co. (NYSE:HAL-Free Report), Schlumberger Ltd. (NYSE:SLB-Free Report), Emerge Energy Services L.P. (NYSE:EMES-Free Report) and Tiffany & Company (NYSE:TIF-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Monday's Analyst Blog:

U.S. Rig Count Keeps Rising, Oil Drilling Surges to Record

In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (NYSE:BHI-Free Report) reported a rise in the U.S. rig count (number of rigs searching for oil and gas in the country). This can be attributed to an increase in the tally of oil-directed rigs, partially offset by lower gas rig count.

The Baker Hughes data, issued since 1944, acts as an important yardstick for energy service providers in gauging the overall business environment of the oil and gas industry.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,931 for the week ended Sep 12, 2014. This was up by 6 from the previous week's rig count and indicates the third increase in as many weeks.

The current nationwide rig count is more than double the lowest level reached in recent years (876 in the week ended Jun 12, 2009) and is well above the prior-year level of 1,768. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending Aug 29 and Sep 12.

Rigs engaged in land operations ascended by 5 to 1,852, offshore drilling was up by 1 to 66 rigs, while inland waters activity remained steady at 13 units.

Natural Gas Rig Count: The natural gas rig count – which in mid-June slumped to its lowest point since May 1993 – decreased for the first time in 6 weeks to 338 (a drop of 2 rigs from the previous week). As per the most recent report, the number of natural gas-directed rigs is down 58% from its recent peak of 811, achieved in 2012.

In fact, the current natural gas rig count remains 79% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 401 active natural gas rigs.

Oil Rig Count: The oil rig count was up by 8 to 1,592. The current tally – the highest since Baker Hughes started breaking up oil and natural gas rig counts in 1987 – is way above the previous year's rig count of 1,361. It has recovered strongly from a low of 179 in June 2009, rising 8.9 times.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 1 remained unchanged from the previous week.

Rig Count by Type: The number of vertical drilling rigs rose by 4 to 372, while the horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) was up by 2 to 1,559. In particular, horizontal rig units increased by 9 from the last week's level to reach an all-time high of 1,342.

Gulf of Mexico (GoM): The GoM rig count remained flat at 62. The number of oil drilling rigs decreased by 1 to 46, offset by a unit increment in gas rigs to 16.

Conclusion

A Key Barometer of Drilling Activity: An increase or decrease in the Baker Hughes rotary rig count heavily weighs on the demand for energy services – drilling, completion, production etc. – provided by companies that include large-cap names like Halliburton Co. (NYSE:HAL-Free Report) and Schlumberger Ltd. (NYSE:SLB-Free Report).

However, our preferred pick in this group is Emerge Energy Services L.P. (NYSE:EMES-Free Report). The Southlake, TX-based firm – carrying a Zacks Rank #2 (Buy) – has a solid secular growth story with potential to rise from the current level.

Tiffany Retains Growth, Even Amid Softness in Japan

Tiffany & Company (NYSE:TIF-Free Report) sustained its positive earnings surprise for the second consecutive quarter in fiscal 2014 hinting that the company is gradually regaining sheen. After a positive surprise of 26% in the first quarter, second-quarter earnings surpassed the Zacks Consensus Estimate by 11.6%. Shares of this designer, manufacturer and retailer of fine jewelry have advanced roughly 10.1% so far in the year.

Estimates have been showing an uptrend since the second-quarter earnings were announcement on Aug 27. The better-than-expected results triggered a northward movement in the Zacks Consensus Estimate, as analysts became constructive on the stock's future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that increased 1.4% to $4.34 for fiscal 2014 in the past 30 days. For fiscal 2015, the Zacks Consensus Estimate jumped 1% to $4.90 in the same period.

We observe that both top and bottom lines came ahead of the Zacks Consensus Estimate. The company delivered earnings of 96 cents a share, way ahead of the Zacks Consensus Estimate of 86 cents and higher than the prior-year quarter's 83 cents. Results benefited from higher sales and improved gross margin. Tiffany posted net sales of $992.9 million, up 7% from the prior-year quarter, driven by healthy performance primarily across the Americas and Asia-Pacific regions, and ahead of the Zacks Consensus Estimate of $990 million.

We believe Tiffany is well positioned to support robust sales and witness earnings growth in the long run by leveraging from capital investments made over the past several years in distribution, manufacturing and diamond sourcing processes. Moreover, with nearly half of the total sales generated internationally, we believe that the company is well diversified from a regional perspective as well.

The company holds a significant position in the world jewelry market, and its long-term growth prospects remain encouraging given its product launches and focus on enhancing geographic reach through the store expansion program.

However, Tiffany is witnessing softening demand across Japan and Europe that is resulting in sluggish sales performance. During the second quarter, sales in Japan fell 10%, while comparable-store sales also decreased 13%. Sales in Europe inched up 1%, while comparable-store sales fell 8% (all in constant currencies).

The pros and cons embedded in the stock are well supported by Tiffany's Zacks Rank #3 (Hold).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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