Merrill Lynch Very Selective on Oil Field Services: 3 Top Picks

Print Email

Despite the nice run in oil and selected exploration and production stocks, the fact of the matter is that for oil field services it may take longer for the recovery to manifest into solid earnings gains. For many producers, the $50 a barrel level is where profitability starts to work, and shuttered oil wells are not turned on easily like a light switch. In fact, it can take up to six months to get wells up and running again.

In a new research report, Merrill Lynch reinstates coverage of oil field services with what they analysts call a “selective” view. They, like others on Wall Street are cautiously optimistic, and while they think the land services companies will be the first to benefit, they also see a drawn-out recovery. Three top picks are highlighted in the report, all are rated Buy.

Halliburton

Shares of this company have ticked higher since the deal with Baker Hughes fell through due to regulators concerns, but they are still down almost 50% from highs printed two years ago. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. The company serves the upstream oil and gas industry throughout the lifecycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.

The oil field giant announced last year a $1 billion investment to develop huge potential oil fields in Ecuador and it 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 the price of oil being absolutely demolished over the past year, this top oil service company is a great stock to buy on sale, as the oil recovery has shown some legs.

The Merrill Lynch team cites the end of the Baker Hughes deal as removing uncertainty on the company, and they also think that the company still has acquisition possibilities, which could help expand the business footprint.

Halliburton investors are paid a 1.62% dividend. The Merrill Lynch price target for the stock is $53, and the Thomson/First Call consensus price target is $46.32. The shares closed Monday at $44.28.