After absolutely crushing most sectors of the S&P 500 over the past year, the energy services stocks finally started to see some serious profit-taking after West Texas Intermediate and Brent crude prices started to plunge from their mid-summer highs. Despite the sell-off, the long-term outlook is positive, and savvy investors need to stay involved, or get involved.
A new report from the analysts at Deutsche Bank says they came away encouraged by what they heard when they recently hosted a series of one-on-one meetings with top energy companies. Despite the commodity price drop and negative sentiment on the group, the outlook for oil service companies remained quite optimistic. North American activity levels and visibility continue to improve. Most importantly, the companies have seen no changes in the overall spending outlook from customers, even with the move down in commodity prices.
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Given that the long ban of oil exporting from the United States is likely to come up for a vote next year, and the long-suffering Congress and the Federal Reserve are looking to stimulate job growth, the top oil services stocks at discount prices may be an outstanding area to look at now.
Here are the seven top stocks rated Buy at Deutsche Bank.
Baker Hughes Inc. (BHI) ranks high on the Deutsche Bank list and is one of its top picks. The company is a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry. With more than 59,000 employees working in more than 80 countries, the company helps its customers find, evaluate, drill, produce, transport and process hydrocarbon resources. It remains focused on continuing to see gains in its pressure pumping business, driven by utilization improvements and self-help initiatives.
Baker Hughes investors receive a 1% dividend. Deutsche Bank has a $97 price target on the stock. The Thomson/First Call consensus target is $84.87. The stock closed Thursday at $67.90 a share.
Basic Energy Services Inc. (BAS) remains a top stock to buy at Deutsche Bank. The company told the analysts during meetings how its completion services segment is continuing to see utilization and pricing improvement. It cautioned that while some of the margin improvement will be partially offset this quarter by start-up costs as its new capacity comes online, but all the capacity will be in place by the end of this quarter. This could boost earnings substantially. Basic Energy also related that its Permian Basin business remains strong.
The Deutsche Bank price target for Basic Energy stock is $36, and the consensus target is $30.75. The stock closed Thursday at $23.34. Trading to the target would be an outstanding 52% gain.
Exterran Holdings Inc. (EXH) completed the acquisition of the compression assets from a division of Chesapeake Energy earlier this year. The purchase of MidCon Compression allows the company to offer expanded compression services across many of the top shales and basins in the United States. The Deutsche Bank team thinks the full impact of the MidCon deal will start to be realized in results for this quarter.
Exterran pays investors a 1.4% dividend. Deutsche Bank has a $65 price target, and the consensus figure is set at $54.40. Shares closed Thursday at $46.30.
Forum Energy Technologies Inc. (FET) is a global oilfield products company serving the subsea, drilling, completion, production and infrastructure sectors of the oil and natural gas industry. Its products include highly engineered capital equipment, as well as products that are consumed in the drilling, well construction, production and transportation of oil and natural gas. While digesting current acquisitions, the company may be looking to expand mergers and acquisitions activity if it finds the right kind of bolt-on opportunities.
The Deutsche Bank target price on Forum Energy is set at $39, and consensus target is $38.07. Shares closed at $33.02.
Hercules Offshore Inc. (HERO) is a small-cap deepwater driller that could prove to be a home run for aggressive stock investors. The company expects slow going in the Gulf of Mexico until the end of this year's hurricane season, but opportunities look much brighter in 2015. Despite the soft jack-up demand in United States and the gulf, the Deutsche Bank analysts expect rates to hang tough due to Hercules' dominant market position and ability to control supply.
The Deutsche Bank price target is a gigantic $6, and the consensus target is at $4.76. Shares closed Thursday's trading at $2.54.
Pioneer Energy Services Corp. (PES) is another small-cap name that could be a solid play for investors. The company provides contract land drilling services and production services to independent and oil and gas exploration and production companies in the United States and Colombia. It operates in two segments: Drilling Services and Production Services. The analysts say Pioneer is focused on deleveraging, while looking for newbuild opportunities in its drilling and production services.
The Deutsche Bank price target is $19, and the consensus is right in-line at $19.06. Pioneer Energy closed Thursday at $14.37.
Schlumberger Ltd. (SLB) is a top mega-cap oil field services stock to buy for the rest of the year and beyond. The company has seen a slowdown in Libya and Iraq due to the geopolitical situation and ongoing battle with the ISIS forces. The stock peaked in July and is down almost 20% since the pick-up in violence. With Russian sanctions also slowing the work pace, it is obvious that with a general cessation of international issues the company can resume strong earnings growth. The analysts said the company gave a positive update on Latin America, citing a recent contract win in Brazil in wireline and better pricing in its drilling contract, as well as finishing mobilization for work to start up in Mexico.
Investors in Schlumberger are paid a 1.5% dividend. The Deutsche Bank price target is $136, and the consensus is at $132.56. The stock closed trading on Thursday at $104.47.
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The time for investors to start scaling funds into top stocks they want to buy is after the sector takes a hit. Oil services stocks were leaders for much of the past two years and have been hit hard. If spending stays firm as anticipated, the sector could show a nice rally.