The Zacks Analyst Blog Highlights:Alcoa, Baker Hughes, Halliburton, Schlumberger and Willbros Group
CHICAGO, April 9, 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 Alcoa (NYSE:AA-Free Report), Baker Hughes Inc. (NYSE:BHI-Free Report), Halliburton Co. (NYSE:HAL-Free Report), Schlumberger Ltd. (NYSE:SLB-Free Report) and Willbros Group Inc. (NYSE:WG-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
Here are highlights from Tuesday's Analyst Blog:
Alcoa Big Earnings Beat, Light on Revs
Aluminum industry stalwart Alcoa (NYSE:AA-Free Report) kicked off the unofficial start to Q1 2014 earnings season after the bell Tuesday, missing on sales expectations but beating big on the bottom line: earnings per share (EPS) of 9 cents topped the Zacks Consensus Estimate of 5 cents for a 44.4% positive earnings surprise. Thus continues Alcoa ping-ponging up and down with earnings surprises of late.
Revenues only reached $5.45 billion, down from the $5749 million expected. Alumnium prices have yet to bounce back -- in fact, they're down 8% year over year -- though Alcoa's Engineered Products and Solutions (largely to do with production of new alloy truck wheels) set an all-time record in sales in Q1, and the segment was up 9% overall year over year.
While a revenue miss like this may be difficult to justify Alcoa stock itself hitting all-time highs just last week when considering the quarter, after-market traders seem to like what they see: AA is up another 2% after the earnings announcement following a slightly positive regular trading day. Year to date, Alcoa is trading up over 18%, and the shares are up more than 52% year over year. This is creating somewhat loftier P/E ratios for an industrial firm, which are now north of 22x next year's earnings.
Analysts have been all over the place with estimate revisions, too: within the past 60 days we've seen 10 upwardly revised estimates from its 12 analysts covering (including two in just the past week) and 5 downward revisions within the same timeframe. For full fiscal 2014, we've seen 12 upward revisions and 5 downward. Alcoa has carried a Zacks Rank #3 (Hold) before the earnings report.
For sure, Alcoa's performance was a big improvement over Q1, when the company posted a 33% miss. But last quarter the company took a $1.7 billion charge for legacy smelting operations and settled with the SEC and Department of Justice over charges of bribing Middle Eastern officials. So even with revenues coming in light, Alcoa's Q1 is smelling like a rose by comparison.
Baker Hughes Counts 9 More U.S. Rigs
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 the increase in oil rig count, partially offset by cutbacks in the tally of gas-directed rigs. Notably, the natural gas rig count dropped to a new 19-year low, while oil drilling jumped to another 27-year high.
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 1,818 for the week ended Apr 4, 2014. This was up by 9 from the previous week's rig count. The current nationwide rig count is more than double the lowest level in recent years (876 in the week ended Jun 12, 2009) and is above the prior-year level of 1,748. 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 increased by 13 to 1,754, offshore drilling was down by 3 to 47 rigs, while inland waters activity fell by 1to 17 units.
Natural Gas Rig Count: Natural gas rig count decreased for the fourth successive week to 316 (a drop of 2 rigs from the previous week). As per the most recent report, the number of natural gas-directed rigs is at the lowest level since May 5, 1995 and down approximately 60% from its recent peak of 811, achieved in 2012. In fact, the current natural gas rig count remains 80% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 375 active natural gas rigs.
Oil Rig Count: The oil rig count was up by 11 to 1,498. 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 1,357. It has recovered strongly from a low of 179 in June 2009, rising 8.3 times.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 4 remained unchanged from the previous week.
Rig Count by Type: The number of vertical drilling rigs rose by 9 to 393, 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 flat at 1,425.
Gulf of Mexico(GoM): The GoM rig count was down by 3 to 46.
Conclusion
A Key Barometer of Drilling Activity: An increase or decrease in the Baker Hughes rotary rig count heavily depends 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 Willbros Group Inc. (NYSE:WG-Free Report). The Houston-based firm – sporting a Zacks Rank #1 (Strong Buy) – has a solid secular growth story with potential to rise significantly from the current level.
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
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