Energy Business

SunTrust Says Plunge in Oilfield Services a Huge Buying Opportunity

ProPetro

This is a smaller cap stock and it is down almost 30% in a month, but it could be a solid stock for aggressive accounts. ProPetro Holding Corp. (NYSE: PUMP) provides hydraulic fracturing and other complementary services to upstream oil and gas companies, which are engaged in the exploration and production of North American unconventional oil and natural gas resources.

The company operates through seven segments focused on hydraulic fracturing, cementing, acidizing, coil tubing, flowback, surface drilling and Permian drilling. Its pressure pumping segment includes cementing and acidizing operations. ProPetro’s operations are focused in the Permian Basin, and its fleet consists of 10 hydraulic fracturing units with an aggregate of 420,000 hydraulic horsepower.

The $28 SunTrust price objective is well above the posted consensus price target of $22.92. The shares closed trading on Friday at $16.42.

Weatherford

This stock has been absolutely demolished from its 2014 highs, but it may be offering aggressive investors big upside potential. Weatherford International Ltd. (NYSE: WFT) is one of the largest multinational oilfield service companies, providing innovative solutions, technology and services to the oil and gas industry. It operates in over 100 countries and has a network of approximately 1,200 locations, including manufacturing, service, research and development, and training facilities and employs approximately 37,000 people.

The company offers customers a wide range of global capabilities, including a proprietary system for pressure management in the mushrooming arena of subsea production. The changes in government oil policy in Mexico in 2014 may provide some favorable tailwinds for the company, despite the huge downturn in oil pricing.

The SunTrust team sees the stock as an aggressive call option on oil and the oilfield services sector and explained why:

A commodity derived case for Weatherford it is a cheaper call option on oil than an actual call option on oil. A December 2018 $55/bbl. strike price call option on West Texas Intermediate is trading at over $6 a barrel. Oil prices would have to go above $61 for this call to be in the money, and the value of the call erodes over time as we approach expiration. Weatherford is trading at $2.74/share, and we expect the shares to trade above $4; perhaps much higher, if oil prices are above $60 by December. We think the shares could trade above $4 if oil remains above $50-$55 this year. With asset sales coming, self-help improving margins and cash flows, and the company’s new CEO saying he is comfortable with street estimates, we think the stock offers a better value proposition than a call option on oil.

The SunTrust team has set a massive $6 price target. That compares with the consensus target of $4.90, as well as the most recent closing price of $2.76 a share.

Clearly the negative sentiment and, perhaps, short-sellers have badly damaged the industry. But the fundamentals remain solid, and these stocks are all priced at extremely cheap levels. They make good sense for aggressive accounts looking for alpha opportunities the rest of the year.

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