The biggest risk is seen in the land drillers and the ultimate inflection point in the price of oil. However, land drillers also have the most upside off the bottom.
For those that must be invested, Credit Suisse recommends its top pick, Schlumberger Ltd. (NYSE: SLB). In a downturn, large-cap, diversified service companies are able to bundle and cross-sell to take share from their smaller peers and Schlumberger seems best-positioned to take advantage of this dynamic.
OFS stocks bottom when the oil price bottoms, which statistically happens in the first quarter and usually at the end of January. Credit Suisse anticipates some dire fourth-quarter conference calls with troubling 2015 guidance that still needs to work its way into the stock prices.
Apart from Schlumberger, Superior Energy Services Inc. (NYSE: SPN) offers leverage to a recovery and is hoarding cash on its balance sheet in preparation to pounce on anything that comes out of recent large M&A deals.
Weatherford International PLC (NYSE: WFT) has sold businesses and generated $1.7 billion in proceeds in an effort to decrease its debt load. Frank’s International N.V. (NYSE: FI) has a new CEO and CFO, which should bring in some public and industry experience while competing in a global duopoly. Patterson-UTI Energy Inc. (NASDAQ: PTEN) is not being recommended by Credit Suisse — nor are any other land drillers for that matter — but it has led the OFS stocks out of the last two down cycles.
The brokerage firm mentions slashing its earnings per share estimates and target prices across the space. The large-cap oilfield services companies are getting earnings per share cut by an average of 27% to 30% and price targets were cut by an average of 13%. The small- and mid-cap equipment group is getting earnings per share cut by an average of 27% to 29% and price targets by 21%. Land drillers had the largest average cuts to earnings per share of 80% to 93% and price targets of 53%.
Wicklund lowered 2015 earnings estimates as follows:
- Schlumberger moved down by 20%. The stock last traded at $81.68, and it has a consensus analyst price target of $102.82 and a 52-week trading range of $78.47 to $118.76.
- Weatherford International had its earnings estimates lowered by 34%. The stock last traded at $10.71, and it has a consensus price target of $17.05 and a 52-week trading range of $10.07 to $24.88.
- Cameron International Corp. (NYSE: CAM) had its earnings estimates moved down by 40%. The stock last traded at $47.35. It has a consensus analyst price target of $66.74 and its 52-week trading range is $44.43 to $74.89.