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After the Fall: Value in Oil Stocks (XOM, CVX, BP, SLB, HAL, BHI, VLO, MPC, TSO, OIH, XOP)

Paul Ausick — Tue, 22 May 2012 15:11:04 +0000

The month-long slide in crude oil prices has chopped the share price of many of the biggest names in the oil patch. Exxon Mobil Corp. (NYSE: XOM) is about -4% in the past month, Chevron Corp. (NYSE: CVX) is down -2.8%, BP plc (NYSE: BP) is down more than -9%, Schlumberger Ltd. (NYSE: SLB) is down about -7%, and Halliburton Co. (NYSE: HAL) is down -6.5%. Only Baker Hughes Inc. (NYSE: BHI) shows a gain for the month, up about 3%. For the past three months, however, Baker Hughes is down more than any of the others, off about -20%.

Refiners are no better off: Valero Energy Corp. (NYSE: VLO) is down -7.7% in the past month, Marathon Petroleum Corp. (NYSE: MPC) is down about -9.8%, while Tesoro Corp. (NYSE: TSO) is up a bare 0.4%. Refiners have been surviving off the wide differential between WTI and Brent crudes and as the differential narrows, profits are harder to come by.

For the integrated oil companies, the price of crude has been the determining factor in a company’s profit picture: the higher the price, the bigger the profit. That makes sense. For the services company, higher prices typically mean more work as producers want to get more oil to sell.

Because crude prices are at a seven-month low now, we thought it would be interesting to look for value in some of the big oil stocks. After all, low crude prices mean share sell-offs, so there ought to be some value left on the table.

With the exceptions of Exxon and Chevron, all the companies we looked at have implied gains exceeding 30% if analysts have gotten target prices right. That’s some pretty good value, but we thought we’d try to handicap the race a bit more closely.

Exxon Mobil Corp. (NYSE: XOM) traded at $82.21 and has a market value of $383 billion. The consensus target price from Thomson Reuters is $94.53 and the 52-week range is $67.03 to $87.94. Exxon has a dividend yield of 2.8%. The implied upside to the consensus target is 15%, but we would note that the target is above the 52-week high.

Chevron Corp. (NYSE: CVX) traded at $99.71 and has a market value of $196 billion. The consensus target price from Thomson Reuters is $124.88 and the 52-week range is $86.68 to $112.28. Chevron has a dividend yield of 3.7%. The implied upside to the consensus target is 25%, but we would note again that the target is above the 52-week high.

BP plc (NYSE: BP) traded at $38.26 and has a market value of $121 billion. The consensus target price from Thomson Reuters is $53.25 and the 52-week range is $33.62 to $48.34. BP has a dividend yield of 5.2%. The implied upside to the consensus target is 39%, but we would note again that the target is above the 52-week high.

Schlumberger Ltd. (NYSE: SLB) traded at $67.47 and has a market value of $89 billion. The consensus target price from Thomson Reuters is $89.20 and the 52-week range is $54.79 to $95.53. Schlumberger has a dividend yield of 1.7%. The implied upside to the consensus target is 32%, and the target price is lower than the 52-week high.

Halliburton Co. (NYSE: HAL) traded at $31.40 and has a market value of about $29 billion. The consensus target price from Thomson Reuters is $47.28 and the 52-week range is $27.21 to $57.77. Halliburton has a dividend yield of 1.2%. The implied upside to the consensus target is 51%, and again the target price is lower than the 52-week high.

Baker Hughes Inc. (NYSE: BHI) traded at $42.20 and has a market value of about $18 billion. The consensus target price from Thomson Reuters is $56.33 and the 52-week range is $39.40 to $81.00. Baker Hughes has a dividend yield of 1.5%. The implied upside to the consensus target is 33%, and again the target price is well below the 52-week high.

Valero Energy Co. (NYSE: VLO) traded at $22.17 and has a market value of about $12 billion. The consensus target price from Thomson Reuters is $30.15 and the 52-week range is $16.40 to $28.68. Valero has a dividend yield of 2.8%. The implied upside to the consensus target is 36%, and again the target price is above the 52-week high.

Marathon Petroleum Corp. (NYSE: MPC) traded at $36.38 and has a market value of about $12 billion. The consensus target price from Thomson Reuters is $52.50 and the 52-week range is $26.35 to $47.43. Marathon has a dividend yield of 2.9%. The implied upside to the consensus target is 44%, and again the target price is above the 52-week high.

Tesoro Corp. (NYSE: TSO) traded at $23.49 and has a market value of about $3 billion. The consensus target price from Thomson Reuters is $31.36 and the 52-week range is $17.43 to $30.15. Tesoro does not pay a dividend. The implied upside to the consensus target is 34%, and again the target price is above the 52-week high.

For comparison, The SPDR S&P Oil & Gas Exploration and Production ETF (AMEX: XOP) traded at $50.45 in a 52-week range of $37.67 to $65.58. That’s about 30% below the 52-week high. The Market Vectors Oil Services ETF (AMEX: OIH) traded at $37.47 in a 52-week range of $35.32 to $45.14, again about 30% below the 52-week high.

Target prices for the large integrated oil companies are above 52-week highs, as are target prices for the refiners. Unless the price of crude rises sharply, the targets are out of reach for the integrated companies. For refiners, they’re whipsawed if prices for WTI open a bigger gap versus Brent or if WTI rise and Brent falls. No chance at those targets either way.

Targets for the services companies are lower than 52-week highs, which improves the chances of hitting those targets. Schlumberger, the largest of the services companies, and Baker Hughes both look appear to have the best chance to boost their share prices.

Paul Ausick

Filed under: Analyst Calls, Commodities, Oil & Gas, Trading Alert, Value Investing Tagged: BHI, BP, CVX, HAL, MPC, OIH, SLB, TSO, VLO, XOM, XOP

Major Reactions As Crude Marches Down Through $100/Barrel (USO, OIH, AMJ, XOM, CVX, SLB, BHI, RIG, NOV, VLO, CHK)

Administrator — Fri, 04 May 2012 16:24:08 +0000

It was just a couple of days ago that oil was trading around $105 per barrel for West Texas Intermediate crude. Now the talk has migrated away from geopolitical risks associated with Iran. European purchasing managers data this week and the expected outcome of the elections are only aiding to the notion that Europe is going to continue to lead the world down. Oil has marched through the $100 barrier to the downside so fast that you might think the price did not even matter. Perhaps the dismal nonfarm payrolls data was the final blow. Some of the downward move is being tied to confusion over new margin requirements set to take place, which is acting as an impact on the major market participants. We wanted to first take a look at the exchange-traded products and then at the key stocks in each group under the oil sector.

The United States Oil (AMEX: USO) is now down 4.1% at $37.23 and the Market Vectors Oil Services ETF (AMEX: OIH) is down 3.7% at $38.57. Even the JPMorgan Alerian MLP Index ETN (AMEX: AMJ), which is supposed to not be so tied to oil and gas prices, is down 0.75% at $39.43 against a 52-week high of $41.68.

Maybe dividend hikes are helping to mitigate some of the losses in the major integrated oil outfits. Exxon Mobil Corporation (NYSE: XOM) is down only 1.2% at $84.60 and Chevron Corporation (NYSE: CVX) is down about 2.1% at $103.75.

The drop is rather large in Schlumberger Limited (NYSE: SLB) with a loss of 3.7% at $69.95 for a loss of about $3 billion in market value. Baker Hughes Incorporated (NYSE: BHI) has suffered substantially from its highs by a drop of half from its 52-week high and shares are now down 4.4% at $40.97.

Elsewhere shares of Transocean Ltd. (NYSE: RIG) is down 4.4% at $48.08 (down from a high of over $70), while National Oilwell Varco, Inc. (NYSE: NOV) is down ‘only’ 2.2% at $71.12.

Valero Energy Corporation (NYSE: VLO) is even lower by 3.1% at $22.80 even though certain drops in the price of oil will help its operating margins. The caveat is that refiners need lower prices and actually they need stable prices so that they can have steadier pricing.

While its move to oil is marred by corporate problems tied to its CEO and governance issues, Chesapeake Energy Corporation (NYSE: CHK) is the only stock up on the major oil and gas stocks we follow.

This drop to $98 in crude is the lowest level since roughly February 10, 2012. This is setting up to be the worst week for crude since the end of September.

JON C. OGG

Filed under: Commodities, Economy, Oil & Gas, Trading Alert Tagged: AMJ, BHI, CHK, CVX, NOV, OIH, RIG, SLB, USO, VLO, XOM

Baker Hughes, Weatherford Continue Winning Streak for Oilfield Services Companies (BHI, WFT, HAL, SLB, NOV, CHK, OIH)

Paul Ausick — Tue, 24 Apr 2012 16:58:01 +0000

The oilfield services companies are on a roll. Well, sort of. Expectations had been lowered so much coming into this earnings season that every one is able to clear the lowered bar. Baker Hughes Inc. (NYSE: BHI) and Weatherford International Inc. (NYSE: WFT) took their turns today. Last week Halliburton Co. (NYSE: HAL) and Schlumberger Ltd. (NYSE: SLB) made it look easy. National Oilwell Varco Inc. (NYSE: NOV) is scheduled to report before the market opens tomorrow.

The lowered expectations were the result of production slowdowns by natural gas producers like Chesapeake Energy Corp. (NYSE: CHK) that have been bedeviled by low natural gas prices. The slowdown has pushed down rig rates as the services companies seek to keep busy.

Baker Hughes may have been the bigger surprise today. The company had been tamping down EPS expectations for the whole quarter. The initial estimate for first quarter EPS came in at $1.25, gradually sinking to $0.80. Baker Hughes reported EPS of $0.86 today on revenues of $5.36 billion, which also topped the consensus estimate of $5.22 billion.

Weatherford actually missed estimates today, but the company’s upbeat outlook made up for the misses. The company posted adjusted EPS of $0.25 versus an estimate of $0.28. Revenue totaled $3.6 billion versus an estimate of $3.64 billion. Weatherford’s EPS was more than twice what it reported in the same period a year ago and revenues were up 26%.

Weatherford forecast second quarter earnings of $0.24-$0.26, a penny below the consensus estimate of $0.27 and the company expects “modest” revenue and operating income growth for the full year compared with 2011. The company believes it is well-positioned to take advantage of increased activity in Canada and some US oil basins.

Baker Hughes plans to cut capital expenditures by $400 million for the year and the company said it will solve its supply chain issues this quarter. The company did not offer further guidance for the second quarter, but the consensus estimate calls for EPS of $0.77 on revenues of $5.24 billion.

Halliburton and Schlumberger both topped lowered estimates last week, and National Oilwell Varco is slated to post EPS of $1.39 on revenues of $4.29 billion tomorrow. The company’s EPS estimate is actually higher than the initial estimate of $1.36 and the revenue estimate is more than 25% higher than actual revenue in the same period a year ago.

Baker Hughes’ shares are up 6.7% at $43.85 in a 52-week range of $39.40-$81.00.

Weatherford’s shares are up 3.9% at $14.23 in a 52-week range of $10.85-$22.76.

National Oilwell Varco shares are up 1.9% at $78.74 in a 52-week range of $47.97-$87.72.

Halliburton’s shares are up 2.4% at $33.73 in a 52-week range of $27.21-$57.77, and Schlumberger’s shares are up 2.8% at $73.15 in a 52-week range of $54.79-$95.53.

The Market Vectors Oil Services ETF (AMEX: OIH) is up 2% at $40.22 in a 52-week range of $35.80-$45.14.

Paul Ausick

Filed under: Earnings, Oil & Gas Tagged: BHI, CHK, HAL, NOV, OIH, SLB, WFT

Schlumberger Escapes The Earnings Hangman (SLB, OIH)

Administrator — Fri, 20 Apr 2012 10:23:04 +0000

Schlumberger Limited (NYSE: SLB) has managed to beat earnings and probably put some fears to rest in the oil services businesses. Many key companies in this sector have seen their shares battered and many of these are down considerably from their yearly highs. The oil services giant said that revenue was $10.61 billion versus a Thomson Reuters consensus of $10.55 billion in sales. Net income $1.31 billion and its earnings came to $0.98 per share against estimates of $0.97 per share.

Keep in mind that Schlumberger is a whopping 19.98% weighting in the key oil services ETF of Market Vectors Oil Services ETF (AMEX: OIH). As goes Schlumberger, so goes the ETF. At $39.65, this ETF has traded in a range of $37.25 to $45.14 over the last 52-weeks.

Oilfield Services revenues were $9.92 billion and that is down 4% sequentially but up 22% year over year; and pretax operating income of $1.94 billion was down 10% sequentially but increased 33% year-on-year. The company’s distribution revenue of $713 million was up 4% sequentially and 19% year-on-year.

The company noted that the revenue drop was a part of the normal seasonal slowdown in product, software and multiclient sales. Excluding seasonal sales effects, North America revenue was called flat sequentially. Another change is that the move of rigs on land and service capacity from gas-rich to liquids-rich basins accelerated. Offshore, increased drilling and deepwater exploration activity in the US Gulf of Mexico contributed positively to results. The company remains cautious about North America. Land activity was said to have remained strong in the Middle East and North Africa. On contracts, Schlumberger also noted that pricing sentiments are starting to move upwards and it went to note that the risk of a double-dip global recession has declined.

Oil companies rarely give formal guidance but the report noted, “We maintain our positive view on the international markets and expect the rig count to grow by more than 10% in 2012 through strength in exploration and deepwater activity as well as in key land markets.”

Schlumberger spent $324 million in the quarter to repurchase 4.4 million shares of its common stock at an average price of $74.01 per share.

Shares closed at $69.80 on Thursday and the 52-week trading range is $54.79 to $95.53.

JON C. OGG

Filed under: Earnings, Oil & Gas Tagged: OIH, SLB

24/7 Wall St. Closing Bell (AAPL, ESRX, GG, NFLX, SLB, CMVT, ISCA, FRS, TISI, MIND, MON, AYI, HEAT, FSLR, VRNG, AONE, MRGE, CONN)

Paul Ausick — Tue, 03 Apr 2012 20:06:50 +0000

Markets opened flat to lower this morning and stayed right around the break-even line most of the morning. The report on factory orders was weaker than expected(our coverage here), although new car sales are up sharply (our coverage here). The minutes of the FOMC’s March meeting quelled for now any thoughts of additional easing, and sent all three major indexes sharply lower (our coverage here). The US dollar index rose sharply today, now up 0.81% at 79.460. Commodities were mixed on the stronger dollar, with cocoa falling the most and cotton also down (our coverage here). WTI crude oil closed down -1.2% at $104.01/barrel, and Brent crude trades down -0.48% at $124.83/barrel. Gold settled down -0.5% today, at $1,672.00/ounce.

The unofficial closing bells put the DJIA down nearly 65 points to 13,199.55 (-0,49%), the NASDAQ fell more than 6 points (-0.20%) to 3,113.57, and the S&P 500 fell -0.41% or nearly 6 points to 1,413.29.

There were several analyst upgrades and downgrades today, including Apple Inc. (NASDAQ: AAPL) started as buy at Auriga and target raised to $715 at Morgan Stanley; Express Scripts Inc. (NASDAQ: ESRX) started as ‘overweight’ at JPMorgan; Goldcorp Inc. (NYSE: GG) started as ‘neutral’ at Citigroup; Netflix Inc. (NASDAQ: NFLX) cut to ‘equal weight’ at Barclays; and Schlumberger Ltd. (NYSE: SLB) raised to ‘buy’ at Sterne Agee.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Comverse Technology Inc. (NASDAQ: CMVT) is down -6.4% at $6.41; International Speedway Corp (NASDAQ: ISCA) is down -0.14% at $28.31; and Frisch’s Restaurants Inc. (AMEX: FRS) is down -0.04% at $27.29. After markets close today we get earnings from Team Inc. (NYSE: TISI) and Mitcham Industries Inc. (NASDAQ: MIND) markets. Before markets open tomorrow we’ll get earnings from Monsanto Co. (NYSE: MON) and Acuity Brands Inc. (NYSE: AYI).

Other standouts from today include the following stocks:

SmartHeat Inc. (NASDAQ: HEAT) is up 93% at $5.29. The Chinese maker of heat exchangers reported weak earnings, but promised to cut costs and do better. More coverage here.

First Solar Inc. (NASDAQ: FSLR) is down about -8% at $22.56 after posting a new 52-week low of $22.42 earlier today. The solar panel maker is simply dying a slow death. More coverage here.

Vringo Inc. (AMEX: VRNG) is up 5.8% at $3.28 after posting a new 52-week high of $4.05 earlier today. The ringtone company is merging with a patent protection firm and this is the second day in a row that shares have posted a new high. Here’s our story from yesterday.

A123 Systems Inc. (NASDAQ: AONE) is down more than -16% at $0.85, the second consecutive day for the shares to put up a new 52-week low. The battery maker is still getting walloped over a recall and its relationship with Fisker Automotive. Here’s our story from yesterday.

Merge Healthcare Inc. (NASDAQ: MRGE) is down more than -16% at $4.95. The healthcare kiosk provider has agreed to sell $2.75 million worth of kiosks to a company controlled by Merge’s chairman.

Conn’s Inc. (NASDAQ: CONN) is up about 14.5% at $18.88 after posting a new 52-week high of $19.75. The regional electronics retailer busted through earnings expectations.

Stay tuned for Wednesday. San Francisco Fed President John Williams is giving a speech. We have also noted the following events on the schedule (all times Eastern):

7:00 a.m. – Mortgage Bankers’ Association purchase applications
7:30 a.m. – Challenger Gray & Christmas layoff report
8:15 a.m. – ADP employment report
10:00 a.m. – Institute for Supply Management non-manufacturing index
10:30 a.m. – EIA weekly petroleum status report

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: AAPL, AONE, AYI, CMVT, CONN, ESRX, FRS, FSLR, GG, HEAT, ISCA, MIND, MON, MRGE, NFLX, SLB, TISI, VRNG

Top Analyst Upgrades & Downgrades (AAPL, CCL, CLNE, DFS, ESRX, GNC, GG, GRPN, KGC, NFLX, NEM, PM, SLB, TKR, URBN)

Administrator — Tue, 03 Apr 2012 12:03:02 +0000

These are some of the top analyst upgrades, downgrades, and initiations seen from Wall Street research calls this Tuesday.

Apple Inc. (NASDAQ: AAPL) Started as Buy at Auriga; target raised to $715 at JPMorgan

Carnival Corporation (NYSE: CCL) named as Bear of the Day at Zacks.

Clean Energy Fuels Corporation (NASDAQ: CLNE) Started as Neutral at Macquarie.

Discover Financial Services (NYSE: DFS) named as Bull of the Day at Zacks.

Express Scripts Inc. (NASDAQ: ESRX) Started as Overweight at JPMorgan.

GNC Holdings Inc. (NYSE: GNC) Raised to Outperform at BMO.

Goldcorp Inc. (NYSE: GG) Started as Neutral at Citigroup.

Groupon, Inc. (NASDAQ: GRPN) Started as Neutral at Stern Agee.

Kinross Gold Corporation (NYSE: KGC) Started as Buy at Citigroup.

Netflix, Inc. (NASDAQ: NFLX) Cut to Equal-weight at Barclays.

Newmont Mining Corporation (NYSE: NEM) Cut to Neutral at Citigroup.

Philip Morris International, Inc. (NYSE: PM) Cut to Neutral at Credit Suisse.

Schlumberger Limited (NYSE: SLB) Raised to Buy at Stern Agee.

The Timken Company (NYSE: TKR) named as Value stock of the day at Zacks.

Urban Outfitters Inc. (NASDAQ: URBN) Raised to Neutral at Citigroup.

If you enjoyed the top analyst upgrades and downgrades, you can join our free email newsletter that includes analyst summaries each morning sent right to your inbox. We also cover top issues such as IPOs, special financial exclusives, mergers and more. Sign up in the box below.

JON C. OGG

Filed under: Analyst Calls Tagged: AAPL, CCL, CLNE, DFS, ESRX, GG, GNC, GRPN, KGC, NEM, NFLX, PM, SLB, TKR, URBN

24/7 Wall St. Closing Bell (BHI, MU, SWY, TSLA, MTG, CALM, SARA, APOL, GOL, WAG, LEN, VRNM, SLB, AONE, AUDC, ARNA)

Paul Ausick — Mon, 26 Mar 2012 20:06:48 +0000

Markets opened about higher this morning following a flat close in Asia and a bit of enthusiasm in Europe following a manufacturing survey from Germany (our coverage here). Then Fed Chairman Ben Bernanke hinted that more stimulus might be on its way to help boost employment(our coverage here). By the last hour of trading the indexes were at or near their highest level of the day. The US dollar index fell today, now down -0.46% at 78.978. Commodities were generally higher on the dollar weakness, with the notable exception of corn. WTI crude oil closed up 0.2% at $107.03/barrel, and Brent crude trades up 0.44% at $125.68/barrel. Gold settled up 1.6% today, at $1,689.00/ounce.

The unofficial closing bells put the DJIA up more than 161 points to 13,241.93(1.23%), the NASDAQ rose nearly 55 points (1.78%) to 3,122.57, and the S&P 500 rose 1.39% or more than 19 points to 1,416.50.

There were several analyst upgrades and downgrades today, including Baker Hughes Inc. (NYSE: BHI) cut to ‘market perform’ at Wells Fargo; Micron Technology Inc. (NASDAQ: MU) cut to ‘perform’ at Oppenheimer; Safeway Inc. (NYSE: SWY) cut to ‘neutral’ at Credit Suisse; Tesla Motors Inc. (NASDAQ: TSLA) raised to ‘buy’ at Wunderlich; and Magic Investment Corp. (NYSE: MTG) started as ‘market perform’ at Keefe Bruyette Woods.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Cal-Maine Foods Inc. (NASDAQ: CALM) is down -5.7% at $39.58; and Saratoga Resources Inc. (AMEX: SARA) is up 6.9% at $7.43. After markets close today Apollo Group Inc. (NASDAQ: APOL) and Gol Linhas Aereas Inteligentes SA (NYSE: GOL) report earnings. Before the markets open in the morning, we’ll get earnings from Walgreen Co. (NYSE: WAG) and homebuilder Lennar Corp. (NYSE: LEN).

Other standouts from today include the following stocks:

Verenium Corp. (NASDAQ: VRNM) is up nearly 20% at $3.69 after posting a new 52-week high of $4.15 earlier today. The enzyme maker is selling some assets. More coverage here.

Schulumberger Ltd. (NYSE: SLB) is down -1.1% at $72.36. The oil field services giant warned on earnings. More coverage here.

A123 Systems Inc. (NASDAQ: AONE) is down about -13.4% at $1.47 after posting a new 52-week low of $1.45 earlier. The company will recall certain batteries for replacement. More coverage here.

AudioCodes Ltd. (NASDAQ: AUDC) is down -16.2% at $2.95. The network gear maker lowered its outlook. More coverage here.

Arena Pharmaceuticals Inc. (NASDAQ: ARNA) is up more than 24% at $2.99 after posting a new 52-week high of $3.19. The drug-maker has begun the process of getting a new drug to market in Europe. More coverage here.

Stay tuned for Tuesday. Federal Reserve Chairman Ben Bernanke and Boston Fed President Eric Rosengren are giving speeches. We have also noted the following events on the schedule (all times Eastern):

9:00 a.m. – S&P Case-Shiller housing price index
10:00 a.m. – Conference Board consumer confidence index
10:00 a.m. – Richmond Fed manufacturing index
11:30 a.m. – 4-week Treasury bill auction
2:00 p.m. – 2-year note auction

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: AONE, APOL, ARNA, AUDC, BHI, CALM, GOL, LEN, MTG, MU, SARA, SLB, SWY, TSLA, VRNM, WAG

Schlumberger Warns on Earnings (SLB, BHI, HAL)

Paul Ausick — Mon, 26 Mar 2012 16:04:57 +0000

At an energy conference in New Orleans today, the CEO of Schlumberger Ltd. (NYSE: SLB) said that downward pressure on prices for the company’s hydraulic fracturing (fracking) services will have a negative impact on the company’s earnings “in this and in the coming quarters.” As rigs are moved from dry gas fields to the more liquids rich fields, costs also rise and utilization rates fall, compounding the profit problems.

Baker Hughes Inc. (NYSE: BHI) warned on corporate earnings last week, leaving only Halliburton Co. (NYSE: HAL) among the big three oil field services companies to remain silent about its prospects.

Shares in Schlumberger are down about -5% at $72.42 in a 52-week range of 54.79-$95.53. Halliburton’s shares are up about 0.8% at $33.67 in a 52-week range of $27.21-$57.77.

Filed under: Earnings Warning, Oil & Gas Tagged: BHI, HAL, SLB

Baker Hughes Slices First Quarter Profit Estimate (BHI, SLB, HAL)

Paul Ausick — Wed, 21 Mar 2012 12:38:32 +0000

Oil field services firm Baker Hughes Inc. (NYSE: BHI) this morning announced that it is cutting its first quarter 2012 operating profit before tax margins in both its US and international operations. The company attributes the reduction to “rapidly changing market conditions in the Pressure Pumping product line in North America and seasonality in all international markets.”

The announcement is likely to affect share prices for Schlumberger Ltd. (NYSE: SLB), Halliburton Co. (NYSE: HAL), and the other services companies. Baker Hughes’ Pressure Pumping division is suffering from a downturn in production of shale gas as producers focus more on extracting higher-priced liquids.

The company’s cuts are significant:

Overall, the company expects North America operating profit before tax margin(1) for the first quarter of 2012 to be between 13.2% and 14.2% compared to 18.7% in the fourth quarter of 2011.

The operating profit before tax margin(1) outlook for international operations for the first quarter of 2012 is expected to be between 12.2% and 13.2% compared to 15.6% in the fourth quarter of 2011 due to seasonality of product sales, weather, geographic mix, and project delays in Latin America.

The company did not provide an EPS estimate. Baker Hughes will report results for its first quarter on April 24th.

Paul Ausick

Filed under: Earnings Warning, Oil & Gas Tagged: BHI, HAL, SLB

Oil Field Services Companies Hit by Weaker Oil Prices (SLB, HAL, BHI, WFT, NOV, RIG)

Paul Ausick — Tue, 06 Mar 2012 18:43:35 +0000

Today’s falling crude prices are having an impact on stocks in the oil field services companies today. Schlumberger Ltd. (NYSE: SLB), Halliburton Co. (NYSE: HAL), Baker Hughes Inc. (NYSE: BHI), Weatherford International Ltd. (NYSE: WFT), National Oilwell Varco Inc. (NYSE: NOV), and Transocean Ltd. (NYSE: RIG) are all down, with Weatherford faring the worst, off -5%.

The selling pressure is a result of the lower forecasts for global economic growth this year, which has had a dampening effect on crude oil prices today. Brent crude is down -1.21% at $122.30/barrel and WTI crude is down -1.66% at $104.95/barrel. Neither price drop is likely to have a significant impact on crude oil production unless today’s economic outlook actually comes true. Even then, the economic hit would have to be more substantial than the -0.3% offered up today for the shrinkage in the eurozone.

China, for example, would have to stick by its forecast of 7.5% GDP growth, and the Chinese are notorious for fiddling with things like bank reserve and lending requirements as the country tries to hit its economic targets. That fiddling very often has unintended consequences that add to market volatility.

The most important factor in crude prices is supply. Not Iran, not speculation, not even global GDP. The central issue for this year is whether or not supply can meet demand. As it stands right now it can, but just barely. A little slowdown won’t hurt producers, and it may even help consumers.

The services companies are all trading well below their target prices and any of the big three — Schlumberger, Halliburton, or Baker Hughes — are reasonable risks given the tight supply/demand situation expected this year.

Paul Ausick

Filed under: 24/7 Wall St. Wire Tagged: BHI, HAL, NOV, RIG, SLB, WFT