UBS Research: Buy Oilfield Services Giants
$UBS, $BHI, $HAL, $SLB, $WFT, $OIL, $USO
A new research report from the highly respected resources team at UBS (NYSE:UBS) points out that drilling has slowed to the lowest pace in years, and now is not the time to speculate on shaky companies. And that the stocks on Buy the buy list at UBS are the Oilfield sector leaders.
In the Oil Patch
In the week ended 6 November, the number of rigs drilling for Crude Oil in the United States totaled 572, compared with 578 in the prior week and 1,568 a year ago. Including 199 other rigs drilling for Nat Gas there are a total of 771 working rigs in the country, down from 775 week over week and 1,154 year over year. The data come from the latest Baker Hughes Inc. (NYSE: BHI) North American Rotary Rig Count.
WTI Crude Oil for Dec delivery fell by about 1.50 bbl over the past 5 days to close the week down 4.9% at 44.52, after rising above 48 Tuesday. Brent Crude Oil closed at 48.42 Friday.
The Top rated companies in the Oilfield services sector, as follows;
Baker Hughes Inc. (NYSE: BHI) about 1 year ago BHI agreed to a friendly merger with Halliburton in a deal worth $34.6-B, but the merger agreement does allow the 2 companies to extend the deal into Y 2016. UBS still thinks that there is a 90% chance the deal will be completed, and while Halliburton says it will close this year, the analysts see a Y 2016 close more likely.
Baker Hughes investors receive a 1.25% dividend. The UBS price target for the stock is 70. The Thomson/First Call consensus price target is at 73.50. The stock closed Friday at 52.08, +2.20, or 4.41%.
BHI is down almost 18% since May and could be offering the best entry price point since last January
Halliburton Co. (NYSE: HAL) looks to be in the final stage of getting the merger with Baker Hughes completed, and the Key is to find the right buyers for the businesses that the US Department of Justice requires be divested.
The Oilfield giant announced last year a $1-B investment to develop huge potential oil fields in Ecuador, and it has entered into a long-time deal with Petroamazonas, an Ecuador-based company involved in the exploration and development of the country’s Crude Oil reserves. With Crude Oil being hammered over the past year, this Top service company is a great stock to buy on sale.
Value buyers and bottom fishers are actively buying the stock at current marks.
Halliburton investors receive a 1.8% dividend. The UBS price target is 60, and the consensus target is 48.13. Shares closed Friday at 39.35, +0.94, or 2.45%.
Schlumberger Ltd. (NYSE:SLB) is the largest Oilfield services company in the world now.
Schlumberger is set for years of solid growth, despite the turn down in Crude Oil prices. Many Wall Street analysts think the company will continue to drive margins on execution, technologies and efficiencies. Russia, Saudi Arabia, Iraq and China are expected to be the strongest markets.
The company announced in August it was buying Oilfield services giant Cameron International in a deal expected to cost about $12.7-B in cash and stock.
Wall Street analysts have raised the price target and forward estimates as they see lower capital needs. Trading at a low 6.6X the firm’s normalized EBITDA estimates, the stock looks cheap in here.
Schlumberger investors are paid a solid 2.56% dividend. The 100 UBS price objective is higher than the consensus target of 89.84. Shares closed Friday at 79.06, 0.26, or 0.33%.
Weatherford International Ltd. (NYSE:WFT) has been cut about 50% since the highs marked last Summer, and it was forced to cut 8,000 jobs back in early February, almost 15% of the company’s total workforce.
The company offers customers a wide range of global Oilfield services, including a proprietary system for pressure management in the arena of subsea production. The changes in government Crude Oil policy in Mexico last year may provide some favorable tailwinds for the company, despite the huge downturn in Oil pricing.
Weatherford has continued to stay relevant after over a year of declining Crude prices, and capital expenditure slowdowns from customers, by lowering corporate costs. According to management, the company has now reduced its workforce by 11,000 employees in Y 2015, translating to a reduction in annual operational costs of $803-M.
The UBS price objective is 15, and the consensus target is 12.39. The stock closed on Friday at 11.15, +0.09, or 0.81%
A trade in the Oil services trade is contrarian. The pain in the industry is here and not going away anytime soon, so sticking with the top names that weathered downturns before makes the most sense if you are compelled to be in the Oil Patch.
Have a terrific weekend.
HeffX-LTN
Paul Ebeling
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