Core Laboratories CLB just cannot seem to catch a break. The oilfield service player, which lost 68% of its value over the past five years, is traversing rough waters amid several headwinds. Shares of Core Labs have declined 12% so far this year against the industry’s 14% increase. Let’s delve into the factors that have taken a toll on the firm.
After the crude crash toward the end of last year, conservative spending by U.S. oil explorers dented demand for oilfield services. Despite an improvement in oil prices, upstream players are giving more emphasis on generating free cash flow and are becoming much disciplined about capital spending decisions. In addition to reducing the demand for oilfield services, this shift in customer strategy has also put pressure on the pricing of Core Labs’ products and services.
Along with conservative capex by North American energy producers, the U.S. shale activity is feeling the heat from the lack of takeaway capacity. Logistical constraints in major shale plays like Permian are forcing producers in the region to sell their output at hefty discounts. This caused upstream companies to slowdown drilling and production activities, thereby impacting demand of oilfield services firms like Core Labs.
Lackluster international and offshore activities also raise concerns. In addition to weakness in international markets, GoM and other deepwater provinces have been bearing the brunt of sluggish operations. While the company is undertaking initiatives to manage its diverse portfolio of proprietary products and services, a tough operating environment is likely to hamper Core Labs’ performance. The firm requires robust international and offshore activities to provide earnings and cash flows leg-up. While things have gradually started looking up for international, offshore and deep-water markets, with various new projects about to get green lit in 2019, the recovery is still not around the corner. Meaningful recovery in international and offshore activities will require sustained higher oil prices.
Investments in technological advancements, involving pad drilling and rig mobility, have led to efficiency gains for producers but softened revenues for oilfield services companies. Resultantly, Core Labs is struggling with competitively-priced backlog and reduced day rates, which have affected earnings and revenues. Over the last two quarters, its top and bottom lines witnessed a sequential and y/y decline.
Moreover, Core Labs is reeling under a high leverage of 61%, which restricts financial flexibility. Moreover, highly leveraged companies are more susceptible to volatility in commodity prices and sudden economic changes.
Surrounded by negativity, the Zacks Consensus Estimate for the company’s 2019 earnings per share (EPS) has been revised downward by 3 cents in the past 30 days. The same for 2020EPS has moved south by 12 cents in the said period.
In light of the pessimism surrounding Core Labs, we believe investors would do better to discard this Zacks Rank #5 (Strong Sell) stock from their portfolios now.
Some better-ranked stocks in the same space are Helix Energy Solutions Group, Inc. HLX Blueknight Energy Partners L.P., L.L.C. BKEP and Oceaneering International, Inc. OII. While Helix and Blueknight sport a Zacks Rank #1 (Strong Buy), Oceaneering carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Core Laboratories N.V. (CLB) : Free Stock Analysis Report
Blueknight Energy Partners L.P., L.L.C. (BKEP) : Free Stock Analysis Report
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