U.S. markets closed

Bear of the Day: Frank's International (FI)

Brian Hamilton

In the service industry, if a big section of your clients suddenly don’t need as much servicing, it negatively impacts the bottom line.  In the case of our Bear of the Day, Frank’s International (FI), they saw 22 out of 25 deep-water rig clients suspend operations, or even cancelled their drilling operations all together during the second quarter of 2016.  Further, the remaining and suspended rigs are now looking for pricing discounts.  The combination of both situations has the company expecting to see second half 2016 revenues down 20% from the first half of 2016.

This Zacks Rank #5 (Strong Sell) is a provider of engineered tubular services to the oil and gas industry. Its tubular services include the handling and installation of multiple joints of pipe to establish a cased wellbore; and the installation of smaller diameter pipe inside a cased wellbore to provide a conduit for produced oil and gas to reach the surface. The Company provides its services to exploration and production companies in both offshore and onshore environments, with a focus on complex and technically demanding wells.

Recent Earnings

Management recently reported Q2 16 results where they missed both the Zacks Consensus Earnings and Revenue estimates by a wide margin.  On a year over year basis, the company saw declines in overall revenues -52% with International Services revenues down -53%, U.S. Services down -53%, and Tubular Sales falling -50%.  Further, the company posted a net loss of $45 million, and adjusted EBITDA fell by $14 million in the second quarter 2016.  Due to the poor performance in the quarter, and the difficult road ahead, management cut their quarterly dividend by 50% in order to lower costs and improve cash flow, according to management. 

Management’s Take

According to Gary Luquette, President and CEO, “Although global offshore rig count was down slightly during the quarter, our offshore tubular running services business was adversely impacted as a majority of rigs that exited the market were serviced by Frank’s and located in our two primary regions of West Africa and the U.S. Gulf of Mexico. 

As we continue to navigate this difficult macro environment the Company remains focused on growing share in underrepresented markets, continuing its lean journey through Frank’s Business System and evaluating opportunities to diversify our product and service offerings. We believe these efforts will position Frank’s well for the eventual upcycle.

Price and Consensus Graph

As you can see from the stock Price and analysts Earnings Consensus graph below, the stock price and future expectations have been consistently declining since 2014.

FRANKS INTL NV Price and Consensus

FRANKS INTL NV Price and Consensus | FRANKS INTL NV Quote

Decreasing Estimates

Due to the recent poor performance, and delayed or cancelled services estimates for Q3 16, Q4 16, FY 16, and FY 17 have all seen significant declines over the past 7 days; Q3 16 fell from -$0.02 to -$0.13, Q4 16 dropped from -$0.02 to -$0.14, FY 16 plummeted from -$0.05 to -$0.32, and FY 17 crashed from $0.03 to -$0.26.

Bottom Line

While management has seen signs of encouragement, increased inquiries about U.S. onshore and Tubular sales business, they still have many big hurdles to overcome before the business stabilizes. 

If you are inclined to invest in the Oil Production/Pipeline segment, you would be best served by looking into SemGroup Corp (SEMG), and or Ultrapar Participacoes S.A. (UGP), both of which currently carry a Zacks Rank #1 (Strong Buy). 

So Where Are the Profitable Trades?

Be sure to short or avoid this Bear Stock of the Day. Now would you like to see Zacks' recommendations that have the best profit potential? Starting today, for the next month, you can follow all our private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for all Zacks trades >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
ULTRAPAR PA-ADR (UGP): Free Stock Analysis Report
SEMGROUP CORP-A (SEMG): Free Stock Analysis Report
FRANKS INTL NV (FI): Free Stock Analysis Report
To read this article on Zacks.com click here.