Start with an industry in the bottom 18% of our Zacks Industry Rank, add 5 downward earnings revisions, sprinkle in a few earnings misses and you have our Bear of the Day, Oil States International (OIS). Consensus for the current year has dropped from $6.64 to $5.77 per share and next year’s estimates saw a decline from $7.49 to $6.77.
Oil States International is a diversified oilfield services company. They are the leading manufacturer of products for deepwater production facilities and subsea pipelines. OIS is a Zacks Rank #5 (Strong Sell) in the beat down Oil Field Machinery and Equipment industry. Downward revisions have the stock wallowing at the bottom of our ranking. The story wasn’t always like this. From 2009 to late 2012, OIS consistently saw earnings growth and earnings estimates revisions to the upside. These events helped OIS rise from a $20 stock to over $100 at its most recent high. A quick look at the price and consensus shows the change in the story recently that occurred. We go from having a consistent up and to the right chart pattern to seeing the dreaded down and to the right lines in the consensus. This could provide further downside pressure for the stock.
Not only have revisions been to the downside recently, but earnings have missed consensus three out of the last four quarters. So even though analysts have been consistently lowering the bar for OIS, they are still missing the consensus. One metric that may be in OIS’s favor is the current PE of 17, below the industry average of 30 and in line with the broader market. If revisions continue to come in lower, perhaps a PE that matches the S&P 500 is unwarranted.
From technical perspective, OIS may be sputtering out here just shy of the century mark. The last time price failed at this level, OIS traded down below $92 until it found support. The trouble seems to have begun in late November 2013 on a day that saw a 52 week high, then the start of a sell off that lasted clear through to February. The recent strength seems more like a reaction to a very oversold position rather than any sort of major trend reversal. The fact that $100 was such a firm top reiterates this view.
Right now OIS is narrowly trading above its 25 day moving average shifted by 5 days. The average provided topside resistance for the stock during its recent gasps for strength. A failure at the 25x5 within the next few days brings the very real possibility of retesting the $84 level the stock hasn’t seen since a big gap up in May 2013.
Investors looking for another trade idea in the space can look to Matrix Service Company (MTRX). Matrix is a Zacks Rank #1 (Strong Buy) in the same industry. If you believe the industry is in for a turnaround, MTRX is a better choice.