Energy Business

Why Goldman Sachs Is Bullish on Oilfield Services for Q3 Earnings and 2021

Goldman Sachs said this about National Oilwell Varco:

Strong balance sheet (Net debt/EBITDA of 1.3x for 2020), diverse geographic and product mix (onshore/offshore, international/US), with roughly 60% of revenues from the international markets. Offers compelling exposure to both U.S. land and longer term growth in the international and offshore markets.

Investors receive a 1.16% dividend. The $17.50 Goldman Sachs price target compares with the $12.91 consensus figure. National Oilwell Varco stock closed at $8.80 on Wednesday.

NextTier Oilfield Solutions

This company is less well known to investors but has massive upside to the Goldman target. NextTier Oilfield Solutions Inc. (NYSE: NEX) is third largest provider of U.S. land completion services, including 2.2 million hydraulic horsepower and other services.

This industry-leading U.S. land oilfield service company has a diverse set of well completion and production services across the most active and demanding basins. Its integrated solutions approach delivers efficiency, and its ongoing commitment to innovation helps customers better address what is coming next.

NexTier is differentiated through four points of distinction, including safety performance, efficiency, partnership and innovation, and it may be one of the most compelling energy stocks today. The analysts remain very positive:

Leading U.S. land pressure pumping company, top-tier in operational execution, attractive balance sheet (2021 Net debt/EBITDA 0.7x), recent merger with C&J to provide revenue synergies over time, and least expensive of the peer group at a 35% discount to the peer group.

Goldman Sachs has set a $5 price target. The consensus target is $3.75 and shares closed at $2.02. Trading to the analyst’s target would be an incredible 170% gain.

Schlumberger

This top oil services company is expected to benefit from increased global exploration and production spending in 2021 and beyond. 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.

The analysts are enamored with this industry leader at such a low price:

Global market share leader, greater international exposure (~80% of 2021 revenues), quickly evolving asset-light strategy, leader in digital initiatives and technology, strong free-cash-flow yield of 10% for 2021, plus new CEO driving rapid change and well-received by investors.

Shareholders receive a 3.18% dividend. The Goldman Sachs price objective is a stunning $30. The consensus target price is $23.46, and Schlumberger stock closed at $15.95.

Technip FMC

This is an incredible energy play for investors that may be a touch more conservative. TechnipFMC PLC (NYSE: FTI) engages in the oil and gas projects, technologies and systems and services businesses. It operates through three segments

The Subsea segment manufactures and designs products and systems; performs engineering, procurement and project management; and provides services used by oil and gas companies involved in deepwater exploration and production of crude oil and natural gas.

The Onshore/Offshore segment designs and builds onshore facilities related to the production, treatment and transportation of oil and gas, and it designs, manufactures and installs fixed and floating platforms for the production and processing of oil and gas reserves.

The Surface Technologies segment designs and manufactures systems, as well as provides services used by oil and gas companies involved in the land and shallow water exploration and production of crude oil and natural gas. This segment also designs, manufactures and supplies technologically advanced high-pressure valves and fittings for oilfield service companies, and it provides flowback and well-testing services for exploration and production companies.

The dividend yield is 1.91%. Goldman Sachs has a $12.50 price objective. The consensus target is $11.39. TechnipFMC stock ended Wednesday at $6.90, so sitting that Goldman Sachs target would be almost a 100% gain.


This cornucopia of oilfield services stocks may be contrarian plays that are still very out of favor, but with two industry leaders and four additional deep value plays, there is something for every risk appetite. Those looking to buy in front of earnings may want to add partial positions and see how the reports come in.