Energy ETFs Surge On Q3 Oil Service Earnings Beats

The energy sector has been performing remarkably well this year on higher oil prices and overseas operations. This trend is expected to continue as we move towards the end of the year. In fact, as per the Zacks Estimates, the energy sector is poised to rank third in Q3 for earnings, after only finance and technology.

This solid earnings output should be easy to hit too, in particular after robust Q3 numbers from two energy giants – Schlumberger (SLB) and Baker Hughes (BHI) – on October 18th. Increased oilfield activity offshore U.S. and overseas boosted the profits of these companies.

Oil Service Earnings in Focus

Schlumberger, the world’s largest oilfield services provider, reported earnings of $1.24 per share that topped the Zacks Consensus Estimate by a nickel and improved from the year-ago quarter as well. Higher offshore drilling activity in North America, strong demand from the Middle East and Asia, and a seasonal rebound in Canadian drilling led to the strong performance.

Revenues climbed 11% to record $10.5 billion and were in-line with our consensus estimate.

Meanwhile, Baker Hughes, the world’s third largest oilfield services provider, surpassed the Zacks Consensus Estimate on both earnings and revenues thanks to strong performances in the Middle East/Asia-Pacific and Europe/Africa/Russia Caspian business units.

The company’s earnings of 81 cents per share increased 2.5% year over year and beat our estimate by 3 cents. Revenues rose 8.1% to $5.79 billion and outpaced our estimate of $5.74 billion.

Following the earnings beat, BHI led the gains in the energy sector, climbing 7.28% at the close on elevated volume after rising as much as 8% in early trading hours. The shares of SLB rose 3.8% in early trading hours but closed a little lower, with a 2.8% rise, on moderate volume.

ETF Impact

This solid run was also felt in the ETF world, with energy ETFs surging. Many of the key funds in this segment have a double-digit allocation to these two oilfield service providers and gained in the day’s session.

Below, we have highlighted three ETFs with the biggest allocations to these two energy bellwethers that have seen higher trading and look to be big movers this week and in the next. Investors should closely monitor the movement in these funds and could catch the opportunity from any further surge in stock prices.

Market Vectors Oil Services ETF (OIH)

This is by far the largest and the most popular ETF in the energy space with AUM of over $1.7 billion and average daily volume of about 3.5 million shares. The fund provides exposure to the 26 most liquid firms by tracking the Market Vectors US Listed Oil Services 25 Index. The ETF charges a fee of 35 bps annually.

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Schlumberger occupies the top position in the basket with 20.65% of assets while Baker Hughes takes the fourth spot at nearly 5% after Halliburton (HAL) and National Oilwell (NOV). Apart from the U.S. companies, the fund also provides exposure to Switzerland, Bermuda, Luxemberg, United Kingdom and the Netherlands.

The fund gained 2.03% on the day and is up nearly 30% in the year-to-date time frame. The product has a Zacks ETF Rank of 3 or ‘Hold’ with a ‘High’ risk outlook.

iShares U.S. Oil Equipment & Services ETF (IEZOriginal post