CHICAGO, Nov. 17, 2014 /PRNewswire/ -- Zacks Equity Research highlights China Telecom (NYSE:CHA-Free Report) as the Bull of the Day and Olympic Steel (Nasdaq:ZEUS-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onHalliburton Co. (NYSE:HAL-Free Report), Baker Hughes Inc. (NYSE:BHI-Free Report) and Schlumberger Ltd. (NYSE:SLB-Free Report).
Here is a synopsis of all five stocks:
As China liberalizes its capital markets, wealthy domestic investors have rushed to buy Chinese stocks listed on the Hong Kong exchange, which are not available in the mainland.
China Telecom (NYSE:CHA-Free Report) is an integrated telecom service operator providing basic telecom services such as wireline and value-added services such as internet access in China. It is the world's largest wireline telecom operator as well as the world's largest CDMA mobile network operator. The Company's H shares are listed in Hong Kong and ADRs are listed on the NYSE.
In a major step towards liberalizing its capital markets, China launched "Shanghai-Hong Kong Stock Connect" program last week. This program allows foreign investors to invest in Chinese companies listed on the Shanghai stock exchange. Earlier foreign investors could invest in these shares only through a quota system available to qualified institutional investors.
This program also provides investors in mainland China access to stocks listed on the Hong Kong stock exchange and specifically to stocks in sectors like Telecom, which are not listed on the Shanghai stock exchange. China Telecom has been one of major beneficiaries of the move.
The company reported its Q3 results last month. Net income for the quarter grew 5.2% over the same period last year and was ahead of the street estimates. 3G subscriber base expanded to 112.5 million with 5.3 million net adds during the quarter.
Analysts have slashed their estimates for this steel producer as recent results revealed increased margin pressures. Sliding estimates sent the stock back to Zacks Rank #5 (Strong Sell) last week.
Headquartered in Cleveland, Ohio, Olympic Steel (Nasdaq:ZEUS-Free Report) is a U.S. metals service center focused on the direct sale and distribution of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel and aluminum products. The company operates from 34 facilities in North America.
The company reported its Q3 results on November 6. Adjusted net income for the quarter was $0.15 per share, substantially worse than the Zacks Consensus Estimate of $0.34 per share. The company has missed the consensus in all of the last four quarters, with an average negative quarterly surprise of 79%.
Per management, "our revenue and market share have grown substantially in 2014; however, we are not satisfied with our bottom line. Operating costs are inflated for the current market environment," and "a multitude of initiatives are underway to lower operating costs and improve efficiencies.
According to the company, US steel prices peaked during the quarter, leading to a surge in imports, which are currently putting pressure on the prices.
After disappointing guidance, estimates for the company have moved downwards. Zacks Consensus Estimates for the current year and next year are now down to $0.73 per share and $1.47 per share respectively, from $1.09 per share and $1.73 per share, 30 days back.
Halliburton-Baker Hughes Merger: What If It Happens?
A potential deal would combine the two big Houston-based firms that help energy companies find and extract oil/gas in an environment where plunging crude prices have hit them badly. Baker Hughes shares ultimately finished up 15.24%, after the rumor was confirmed by a company statement, while Halliburton stock edged up 1.05%, amid heavy volumes.
What's in It for Halliburton?
For starters, Halliburton has reason to want Baker Hughes.
Apart from the elimination of a major competitor, a combination with Baker Hughes would provide the world's second-biggest provider of oilfield services a much needed boost in taking on the largest player in the field, Schlumberger Ltd. (NYSE:SLB-Free Report).
Schlumberger – with a market capitalization of $122 billion – has operations in approximately 85 countries, leading to a competitive advantage that often translates into higher margins due to economies of scale. A Halliburton-Baker Hughes combination might neutralize this over the long run through cost absorptions and efficiencies, thereby expanding profitability, global footprint and market share.
In particular, the merged entity would have a dominating presence in North America, where hydraulic fracturing ('fracking') procedure is a big money maker for oilfield service companies. Moreover, a bigger size would also enable more pricing power and insulation from sustained market downtrend.
Last but not least, with Baker Hughes Halliburton would get the knowhow to boost volumes from the aging fields, a yet-unfulfilled gap in its portfolio. Halliburton – carrying a Zacks Rank #3 (Hold) – would also gain Baker Hughes' famed oil tools unit.
Given the massiveness of the combined entity – with a potential 40% market share in the $25 billion domestic onshore fracking market, more than twice that of Schlumberger – the regulators might want it to take certain steps to prevent it from abusing its size.
North America is the region where the two companies have some of the greatest overlap, and Halliburton and Zacks Rank #4 (Sell) Baker Hughes would have to assess whether any asset divestments are necessary to satisfy antitrust requirements.
Finally, the amalgamation of two companies, both big and very different, is not expected to be a cakewalk. The unification process could take years, and may derail Halliburton's focus in the process.
Should the deal go through and the No. 2 and No. 3 oilfield service providers tie up, it will create an industry powerhouse with a market value approaching $70 billion and 140,000 employees, seriously challenging the might of Schlumberger.
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