If you are going to invest capital in a sector that has, and likely will continue to struggle for the next year or so, it makes sense to direct that capital to companies with the biggest upside potential. Deutsche Bank met recently with more than 20 oil service companies in Houston and came away with data and opinions that investors can benefit from going forward.
In a new report, the Deutsche Bank team pointed out that while overall industry enthusiasm remains somewhat tamped down, optimism around land rig utilization and pricing for alternating current or AC rigs seems high with both drillers and investors. We screened the Deutsche Bank list for the stocks rated Buy with the most upside to the posted price targets.
This oilfield services behemoth rebounded smartly off the lows printed in January, but it has rolled over again as oil prices have weakened. Schlumberger Ltd. (NYSE: SLB) is the world’s leading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry worldwide. Employing approximately 115,000 people representing over 140 nationalities and working in more than 85 countries, Schlumberger provides the industry’s widest range of products and services from exploration through production.
While the company’s operating income decreased 15.8% to $1.99 billion in the first quarter from $2.36 billion in the same period in 2014, most of the decline came from lower North American operations. That is a bright spot as global operations remained steady. The deterioration in income and margin resulted from the company’s poor showing in North American land activity. With drilling picking up, and domestic rigs expected to be added this year and next, the prospects for the company look outstanding.
Schlumberger investors are paid a 2.38% dividend. The Deutsche Bank target price for the stock is $111. The Thomson/First Call consensus price target is lower at $101.19. Shares closed Monday at $83.49. Trading to the Deutsche Bank target would be a 42% gain.