Despite a strong oil price backdrop, stock performance for the top oilfield services stocks has been mixed and investors generally remain underweight energy in general and oil service specifically. The analysts at Deutsche Bank believe this is a function of numerous false starts (and related investor skepticism) regarding field fundamentals. This may be changing, at least with respect to service (as opposed to drilling) names.
With the U.S. rig count climbing, strong oil prices, improved differentials in some cases, robust exploration and production capital markets activity are putting upward pressure on second half of the year spending -- in contrast to last year’s collapse. Deutsche Bank says this improvement will not be across the board. Offshore drilling fundamentals remain challenged, especially on the supply front. The analysts are focused on the diversified service players as the big winner. Here are their top stocks to buy now.
Baker Hughes Inc. (BHI) is one of the top three picks at Deutsche Bank. The analysts point to a long restructuring that is finally over, as well as the integration of BJ Services into the company, as key catalysts for future growth. The Deutsche Bank price target for the stock is $56. The Thomson/First Call estimate is $54. Investors are paid a 1.3% dividend.
Halliburton Co. (HAL) is another of the top three picks at Deutsche Bank. The analysts view the company as the top large cap play in the industry. They also see international margins improving dramatically and high margin work like deepwater drilling adding to earnings growth. Deutsche Bank has a $55 price target, the same as the consensus target. Investors are paid a 1.0% dividend.
Nabors Industries Ltd. (NBR) rounds out the list of the top three stocks to buy at Deutsche Bank and is the top mid cap name. The company cites the company's better-than-average fleet, including a large number of high-end rigs in the U.S. and strong international business to drive growth. The Deutsche Bank price target for the stock is $23, and the consensus is posted at $17. Investors are paid a 1.0% dividend. The Deutsche Bank target is the highest on Wall Street and would represent almost a 50% gain from current levels.
Schlumberger Ltd. (SLB) is a top name for investors looking to capitalize on the emerging service markets around the world. Plus, the company is an industry leader in technology and innovation. Despite an exposure to the volatile Middle East, the company continues to expand market share and consistently grows earnings. Deutsche Bank has a $93 price target and the consensus is at $96.50. Investors are paid a 1.5% dividend.
Patterson-UTI Energy Inc. (PTEN) is another name in which the Deutsche Bank team sees tremendous upside. With strong cash flow generation and continued share repurchases to help as activity levels accelerate, the stock has big potential for investors at this level. Deutsche Bank has a $28 price target and the consensus figure is $23.50. Investors are paid a 1.0% dividend. A move to the target from current levels would represent a 40% gain.
Noble Corp. (NE) is a deepwater driller that the Deutsche Bank analysts are very bullish on. With corporate missteps behind the company, its shift to the deepwater/floater market will benefit from an improving landscape and very strong demand. Deutsche Bank has a $52 price objective for the stock, while the consensus is at $47. Investors receive a respectable 2.7% dividend. Trading to the target would represent a 40% gain from current levels.
Exterran Holdings Inc. (EXH) may be the stock that has the largest upside potential in the Deutsche Bank list. With restructuring efforts helping to ramp up the free cash flow, Exterran's exposure to the international compression market that remains largely untapped offers significant growth opportunities. The Deutsche Bank price target is set at $44, and the consensus is much lower at $33.50. Deutsche Bank is the high number on Wall Street, and a trade to the target would represent a stunning 60% gain for investors.
Last year the oil services industry experienced a shutdown of spending near the end of the year, which was a very rude awakening for shareholders. With strong oil pricing expected for the rest of 2013, the likelihood of a repeat is virtually impossible. Investors may want to take advantage of the relative underperformance of the sector and add some of these top names to buy now.