For the bulls in the energy sector, it must seem like sweet revenge. When the price of oil hovered in the mid $20s in January of 2016, some of the bears on Wall Street said the selling wasn’t close to over, and it was going even lower. This week oil hit the highest levels in over three years, and many now think it could break through the $70 a barrel mark.
The good news for investors is that, while oil prices have exploded, some of the stocks are still reasonable.
A new Merrill Lynch research report previews first-quarter earnings for the top oil service stocks in their coverage universe, and while the results could be lumpy, due to weather and rail logistics issues, the firm is very positive for the rest of 2018 and noted this:
Cost inflation and rail issues should be key topics on conference calls, along with customer sentiment and the international market outlook. Given recent stability in oil prices and Saudi comments suggesting it would support a price near $80, we will be curious to hear if exploration and production companies back off of rig addition “discipline.”
We screened the oilfield services coverage list for stocks rated Buy and found four that look like outstanding Buys at current levels.
Final approval for the merger of the Baker Hughes and General Electric was completed last year, and this is the new entity. Baker Hughes, a GE Company (NYSE: BHGE) is a provider of integrated oilfield products, services and digital solutions. The company’s products and services include upstream, midstream, downstream, industrial and digital.
Baker Hughes upstream business includes evaluation, drilling, completions and production. Midstream enables the power and compression efficiency for liquefied natural gas pipeline and storage. Downstream builds reliability and safety into process operations that include refining and petrochemical and fertilizer solutions.
The company’s industrial solutions unit offers power generation to advanced control systems and sensing technology that power industrial facilities. Digital transformation integrates data on an open platform with security and scale. The digital transformation enables field services with real-time insights.
The analyst turned positive on the shares earlier in April and raised the rating on the stock to Buy with a $36 price target. The Wall Street consensus price target is $35.74, and the stock closed trading on Thursday at $33.71 per share.
This top oil services company is expected to benefit from increased exploration and production spending, and it is also a member of the Merrill Lynch US 1 list. Schlumberger Ltd. (NYSE: SLB) is the world’s largest provider of services and equipment used in drilling, evaluation, completion, production and maintenance of oil and natural gas wells. Revenues in 2017 totaled $30.4 billion, and EBITDA was $6.9 billion.
The company operates in the oilfield service markets through three groups: Reservoir Characterization, Drilling and Production. Reservoir Characterization Group consists of the principal technologies involved in finding and defining hydrocarbon resources. These include WesternGeco, Wireline, Testing Services and Schlumberger Information Solutions.
The company reported solid first-quarter results Friday morning, and produced net income of $525 million, or 38 cents a share, in the first quarter, after a loss of $2.255 billion, or $1.63 a share, in the year-earlier period.
Schlumberger shareholders are paid a solid 2.85% dividend. Merrill Lynch has a $75 price objective on the stock, but the posted consensus target is higher at $81.17. The shares ended trading on Thursday at $70.28 apiece, but they were down some in Friday’s premarket action.