Zacks Industry Outlook Highlights Schlumberger, Halliburton, Baker Hughes and RPC
For Immediate Release
Chicago, IL – February 10, 2022 – Today, Zacks Equity Research discusses Schlumberger Ltd. SLB, Halliburton Co. HAL, Baker Hughes Co. BKR and RPC, Inc. RES.
Industry: Oilfield Services
Link: https://www.zacks.com/commentary/1864628/4-oilfield-services-stocks-to-gain-from-the-prospering-industry
The business environment for oil exploration and production activities has improved drastically, reflecting that oil price has returned to its glorious days. With drillers returning to the oil patches, demand for oilfield services has improved significantly. Thus, the outlook for the Zacks Oil and Gas- Field Services industry is bright again.
Among the frontrunners in the industry that will possibly make the most of the improving business scenario are Schlumberger Ltd., Halliburton Co., Baker Hughes Co. and RPC, Inc.
About the Industry
The Zacks Oil and Gas - Field Services industry comprises companies that primarily engage in providing support services to exploration and production players. These companies help in manufacturing, repairing, and maintaining wells, drilling equipment, leasing of drilling rigs, seismic testing as well as transport and directional solutions, among others.
Also, the companies help upstream energy players locate oil and natural gas, and drill and evaluate hydrocarbon wells. Hence, oilfield services businesses are positively correlated to expenditures from upstream firms.
Furthermore, with countries around the world investing heavily in liquefied natural gas (LNG) terminals, a few oilfield service companies are extending their reach beyond the hydrocarbon fields and capitalizing on contracts for manufacturing equipment that are used in LNG facilities to decrease carbon emissions.
3 Trends Defining Oilfield Services Industry's Future
Surging Oil Price: The price of West Texas Intermediate (WTI) crude is trading higher than $89 per barrel, marking a massive improvement of more than 50% in the past year. Strong fuel demand across the world and ongoing tensions in Eastern Europe are aiding the rally in oil price. The massive improvement in oil price is aiding exploration, production and drilling activities. This in turn will boost demand for oilfield service since oilfield service players assist drillers in efficiently setting up oil wells.
Digital Solutions: Oilfield service players are creating value for clients through digital solutions. With the introduction of a digital platform strategy, companies belonging to the industry are not only accelerating returns but also reducing cycle time. Starting from increasing productivity and efficiency, oilfield service players are also reducing costs and carbon emissions, thereby optimizing cashflows.
Growth in International & North American Markets: Given the favorable upstream business scenarios, it is highly likely that capital spending will ramp up in both North American and international markets. Thus, demand for oilfield services will continue to grow this year and beyond, thereby securing higher earnings.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil and Gas – Field Services is a 27-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #63, which places it in the top 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to buy, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500, Underperforms Sector
The Zacks Oil and Gas – Field Services industry has outperformed the Zacks S&P 500 composite over the past year but remained below the broader Zacks Oil – Energy sector.
The industry has risen 20.1% over this period compared with the S&P 500’s improvement of 14.8% and the broader sector’s 34.6% rally.
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes not just equity into account but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.
On the basis of the trailing 12-month EV/EBITDA, the industry is currently trading at 14.11X compared with the S&P 500’s 15.04X and sector’s 5.10X.
Over the past five years, the industry has traded as high as 14.83X, as low as 1.92X, with a median of 9.33X.
4 Oilfield Services Stocks Moving Ahead of the Pack
Schlumberger Limited: Schlumberger is a leading oilfield service player with operations spreading in domestic and international markets. Schlumberger is well placed to capitalize on the improving demand for oilfield services, given increasing drilling operations.
Schlumberger, carrying a Zacks Rank #1 (Strong Buy), recently reported strong fourth-quarter results. The strong quarterly earnings of SLB resulted from higher contributions from Europe/CIS/Africa, strong North America rig activity and increased well construction activities in the U.S. Gulf of Mexico.
RPC Inc: Considering that drilling activities are ramping up, RPC’s business prospect remains bright since the company provides a wide range of specialized oilfield services and equipment. RPC reported strong fourth-quarter 2021 results owing to higher activity levels in all the service lines and improved pricing.
Revenues of RPC are improving, given that the Zacks Rank #1 company had placed its new Tier IV dual-fuel pressure pumping fleet into service by late third quarter last year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Halliburton Company: Halliburton is also a leading oilfield service player, capitalizing improving demand for oilfield services. Looking ahead, Halliburton expects industry fundamentals to remain conducive, which will spur growth in both North American and the overseas markets.
Halliburton, carrying a Zacks Rank #3 (Hold), believes that it is perfectly placed to benefit from this emerging multi-year upcycle based on its smart strategy, digital leadership, capital efficiency, while aiming for a sustainable energy future. HAL’s cash flow generation capabilities and balance sheet strength should also ensure increased shareholder returns.
Baker Hughes Company: Baker Hughes is well placed to derive earnings from improving demand for oilfield services. Baker Hughes secures additional cashflows, backed by increasing orders from its oilfield services business segment.
Looking forward, Baker Hughes, with Zacks Rank of 3, is expecting energy demand to remain strong that will ultimately drive its products and services.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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Schlumberger Limited (SLB) : Free Stock Analysis Report
Halliburton Company (HAL) : Free Stock Analysis Report
RPC, Inc. (RES) : Free Stock Analysis Report
Baker Hughes Company (BKR) : Free Stock Analysis Report
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