The shares of diversified oil services company Halliburton (HAL) have been hammered during the past several weeks. Plunging spot crude prices — Brent crude fell to a 47-month low below $84 per barrel yesterday — are seen creating havoc with the company’s bottom line, especially since several of the company’s services contracts are up for renewal soon.
With slack demand pervading the current market environment, HAL stock holders will be keeping a close watch on the Monday’s third-quarter earnings report.
For the record, Wall Street is expecting a profit $1.10 per share from Halliburton, a figure that is up 27 cents from the same quarter last year. Meanwhile, revenue is seen rising about 14% year-over-year to $8.52 billion.
While the company hasn’t blown the doors off the earnings confessional, Halliburton has been consistent, topping the Street’s forecasts in three of the past four reporting periods by an average of 1.9%. As such, it’s not much of a surprise that EarningsWhisper.com reports that Halliburton’s third-quarter earnings whisper number arrives at $1.12 per share — 2 cents better than the average.
Optimism toward Halliburton also is prevalent in the brokerage community. For instance, data from Thomson/First Call reveals that 26 of the 30 analysts following HAL stock rate it a “buy” or better, compared to four “holds” and no “sell” ratings. Due to the sharp selloff during the past several weeks, the consensus 12-month price target of $81 will certainly begin to trend lower, considering HAL closed at $50.64 on Wednesday.
Options traders, on the other hand, appear to have bought into the stock’s decline, with the bullish sentiment seen in the brokerage community taking a backseat to trepidation. Specifically, the October/November put/call open interest ratio for HAL stock arrives at a lofty 0.82 heading into the company’s quarterly report. Peak open interest in the October/November series resides at the Oct $70 call strike, totaling 17,284 contracts. Following at a distant second is the Oct $60 put, which sports 12,213 contracts.
Click to Enlarge Technically speaking, HAL’s price action has been abysmal of late. The stock is off more than 30% since reaching a high above $73 in July, and resistance has emerged at HAL’s declining 10- and 20-day moving averages. Shares have even blown through their 50- and 200-day moving averages, setting both on a collision course for a bearish cross — a technical formation that has longer-term bearish implications for HAL.
Under different circumstances, Halliburton stock would be a buy at these levels. Even now, the stock looks oversold, and the temptation to buy calls or go long the stock heading into earnings is tempting. That said, there is considerable fear in the market, and global economic developments are not pointing toward a rebound in crude demand anytime soon.
Options Trade on HAL Stock
As such, options traders looking to jump into a HAL position ahead of earnings may want to consider a bear put spread.
Overall, October implieds for HAL stock options are pricing in a potential post-earnings move of about 4%. This places the upper bound near $52, while the lower bound lies near $48. Taking implieds into account, a Nov $45/$50 bear put spread appears to have potential.
At last check, this spread was offered at $1.70, or $170 per pair of contracts. Breakeven lies at $48.30, while a maximum profit of $3.30, or $330 per pair of contracts, is possible if HAL closes at or below $45 when November options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
