Energy Business

RBC Sees Opportunities in Oilfield Services as Crude Forecast Revised Down


The stock is down over 40% since last May and could be offering the best entry price point since this time last year. Halliburton Co. (NYSE: HAL) now seems to be in the final stretch of getting the merger with Baker Hughes completed, and the trick is to find the right buyers for the businesses being divested as required by the Justice Department and the European Union.

The oil field giant announced last year a $1 billion investment to develop huge potential oil fields in Ecuador and has entered into a long-time deal with Petroamazonas, an Ecuador-based company involved in the exploration and development of the country’s oil reserves. With oil being absolutely demolished over the past year, this top oil service company is a great stock to buy on sale.

The company remains one of the top holdings in Jeffrey Ubben’s $19 billion ValueAct Capital’s portfolio, which holds over 37 million shares. It was also a new position added last year to Simon Sadler’s Segantii Capital hedge fund. Value buyers and bottom fishers are actively buying the stock at current levels.

Halliburton investors receive a 2.33% dividend. RBC has a $48 price objective, and the consensus target is $44.22. The shares closed Tuesday at $29.79.


Many investors are unlikely to view this as a value stock, but given the debacle in the energy sector over the past year, the decline in share prices has pushed it almost to value levels. Schlumberger Ltd. (NYSE: SLB) remains the largest oilfield services company in the world for now, with far-reaching operations around the globe, and it could be poised for years of solid growth despite the huge turn down in oil pricing.

RBC and a host of other Wall Street analysts think the company will continue to drive margins on execution, technologies and efficiencies. Russia, Saudi Arabia, Iraq and China are expected by some to be the strongest markets, if geopolitical concerns remain somewhat in check.

Schlumberger announced last August a deal to buy oilfield services giant Cameron International in a deal expected to cost about $12.7 billion in cash and stock. Wall Street analysts note what they term the company’s “drive to disrupt the status quo,” which includes transformation initiatives like the gigantic purchase of Cameron. Trading at a low six times the firm’s normalized EBITDA estimates, the stock looks cheap.

For the fourth quarter analysts expect earnings per share to be almost 20% lower than the third-quarter numbers and 57% lower than a year ago. Weaker crude oil prices and lower spending by North American upstream energy producers will continue to take its toll on oilfield service companies, but trading at current levels, long-term investors have an excellent entry point.

Schlumberger investors receive a 3.17% dividend. The $92 RBC price objective is higher than the $86.72 consensus target. The shares closed Tuesday at $62.82.

Again, at these levels, traders might want to hop in for a trading bounce. However, long-term investors may want to scale capital in and buy shares over the next three to six months. These three stocks are among the best in the sector, and they will live to fight another day.

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