Top Oilfield Services Stocks Remain Cheap as Oil Surges Higher
After trading down to the mid-$40s in December and January, oil has surged back to the $60 a barrel level for West Texas Intermediate. And with many Wall Street firms seeing higher oil prices this summer due to OPEC production cuts and restrictions on Iran and Venezuela, the sector is looking much stronger. Oddly, the oilfield services stocks have not rallied with the price of crude and may be offering investors the best entry points in years.
With oil pushing higher and drilling permits also starting to spike up, the analysts at SunTrust Robinson Humphrey are positive on second-quarter activity that could prove to be a strong catalyst for the sector. We screened the firm’s coverage universe for oilfield services and found four top companies that are leaders in the sector that look like solid ideas now. All are rated Buy.
General Electric announced late last year it will be divesting a large part of its interests in this company, which could provide some life to the shares. Baker Hughes, a GE Company (NYSE: BHGE) is a provider of integrated oilfield products, services and digital solutions. Its products and services include upstream, midstream, downstream, industrial and digital.
The upstream unit includes evaluation, drilling, completions and production. Midstream enables the power and compression efficiency for liquefied natural gas (LNG) and pipeline and storage. Downstream builds reliability and safety into process operations that include refining and petrochemical and fertilizer solutions.
Baker Hughes industrial solutions 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. This unit enables field services with real-time insights.
Shareholders receive a 2.60% dividend. The SunTrust price target for the shares is $35, and the Wall Street consensus target is $31.89. The stock closed Tuesday at $27.68.
This stock is down almost 42% since late May of 2018 and remains a top large-cap oil services pick across Wall Street. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. It serves the upstream oil and gas industry throughout the life cycle 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.
Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. For investors looking for an oilfield services company to add, this is arguably the best, and analysts feel it will be a huge benefactor as the frac market has tightened significantly and prices are 20% to 30% off the lows.
SunTrust has noted in the past that Halliburton’s business is dependent on commodity prices. As economic cycles proceed, commodity prices fluctuate. A low-price environment triggered by anemic economic growth or excessive production growth would limit demand for goods and services. With oil rising strongly this year, the worst for the company may be over.
Halliburton shareholders receive a 2.53% dividend. SunTrust has a $50 price target, while the consensus target is $38.97. Shares closed Tuesday at $28.47.
Helmerich & Payne
This large-cap sector leader is perhaps a safer and more conservative play. Helmerich & Payne Inc. (NYSE: HP) is the largest U.S. land driller and provides onshore drilling services primarily in the United States. It also offers land rigs internationally, as well as offshore platform rigs in the Gulf of Mexico.
The company provides drilling rigs, equipment, personnel and camps on a contract basis to explore for and develop oil and gas from onshore areas and fixed platforms, tension-leg platforms, and spars in offshore areas. Its contract drilling business operates through three reportable segments: U.S. Land, Offshore and International Land.
In the past, the RBC analysts have cited that the company has the best U.S. land drilling rigs, the most upgradeable rigs, the best capital structure and a 47-year history of dividend increases.
Investors receive a fat 5.11% dividend. The strong $71 SunTrust price target compares with the $65.08 consensus target. Shares closed Tuesday at $55.63.
This top oil services company is expected to benefit from increased global exploration and production spending. 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.
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.
Rising activity, backlog additions for integrated projects and the possibility that international pricing has bottomed and should improve the rest of 2019 should be supportive of improving earnings over the next few years.
Shareholders receive a 4.60% dividend. The SunTrust price target is $60. The consensus target is $53.68, and shares closed at $43.05.
All the sector giants have been battered and are offering investors some of the best entry points in the past five years. Plus, they are all good additions to growth portfolios that also like the benefit of a solid dividend.