UBS Offers Top Oil Services Stocks to Buy Before Third-Quarter Earnings

As the U.S. oil industry drives toward becoming a net exporter of energy to the rest of the world, the top oil service stocks are poised to thrive. The oil services analysts at UBS have forecast revenue growth in 2014 of 10% for the diversified oil service companies. They expect growth to be driven by deepwater drilling and increasing services demand. This is above the 8% estimate from the Spears report. UBS forecasts 12% revenue growth in the international markets and 7% in North America.

This higher growth estimate bodes extremely well for the top oil services companies. While the UBS team thinks that in the near term some of the top stocks to buy could take a breather, they are very bullish on the long-term outlook. In a new research report, they update their top stocks to buy and refresh their analysis of third-quarter earnings expectations.

Baker Hughes Inc. (NYSE: BHI) is seeing extremely solid traction in its hydraulic fracturing (fracking) fleet, with some crews running 24/7. UBS is also very positive on it increasing Latin American business, where margins are recovering smartly. Baker Hughes is expected to report in-line third-quarter numbers. The UBS price target for the stock is $54. The Thomson/First Call estimate is posted at $55. Investors are paid a 1.2% dividend. Baker Hughes closed Wednesday at $48.64.

Halliburton Co. (NYSE: HAL) is expected to show a restructuring charge when it posts what UBS thinks will be in-line earnings for the third quarter. An extremely positive announcement came last month, when the U.S. Department of Justice closed its investigation of the company’s role related to the Macondo well incident. While Halliburton had to pay a $200,000 fine, the headline risk associated with the oil spill in 2010 has gone away. The UBS price target for this top stock to buy is $60. The consensus target is $58. Investors are paid a 1% dividend. The stock closed Wednesday at $48.56.

Schlumberger Ltd. (NYSE: SLB) is expected to have very positive commentary when it reports expected in-line earnings for the third quarter. The UBS analysts think that the company’s international business will prove to be extremely strong. While the North American forecasts may be more mixed, the overall picture should be very positive. The UBS price target for the services giant is posted at $98, the same as the consensus target. Investors receive a 1.4% dividend. The stock closed Wednesday at $87.04.

Cameron International Corp. (NYSE: CAM) is a top equipment name to buy at UBS and is also on the Goldman Sachs list of top picks. UBS is somewhat cautious on upcoming earnings though. The analysts think there is a possibility of shrinking margins in Cameron’s subsea business. While they expect the company to report in-line third-quarter numbers, their figure is 5% below consensus estimates. The UBS price target for the stock is $68, and the consensus target is higher at $73. Cameron closed Wednesday at $60.09.

FMC Technologies Inc. (NYSE: FTI) is the leader in the subsea market, with an astonishing 41% share of the business. The company has the relationships with key industry players already in place to grow as these companies grow. The UBS analysts think that the story doesn’t end there, as FMC works with its customers to pursue additional growth opportunities through the use of innovative technology and more cost-effective operations. They think that should keep FMC well positioned to capture additional growth in the future and even to expand its already huge market share. Expecting in-line third-quarter earnings, UBS has a $66 price target. The consensus is at $64. FMC closed Wednesday at $55.82.

Frank’s International N.V. (NYSE: FI) was one of CNBC’s Jim Cramer’s top picks to buy this week. The company is a leading provider of tubular services to the oil and gas industry. It offers investors an industry-leading return on capital employed, and operating margins and high leverage to offshore/deepwater drilling. The industry leading margins are driven by the small dollar value but critical nature of the company’s work, the company’s suite of proprietary technology and a fairly consolidated market offshore. The UBS price target for the stock is $33, while the consensus is at $34.50. Investors are paid a 1% dividend. Frank’s closed Wednesday at $30.17.

Rowan Companies PLC (NYSE: RDC) is the only offshore driller to make the UBS list of stocks to buy. The analysts expect Rowan to report in-line third-quarter earnings. The company is a major provider of international and domestic contract drilling services, with a leading position in high-specification jack-up rigs. The company’s fleet of 30 jack-up rigs is located worldwide, including the Middle East, the North Sea, Trinidad, Egypt, Southeast Asia and the Gulf of Mexico. Additionally, Rowan has four ultra-deepwater drillships under construction, with three of the four drillships under three-year contracts. The UBS price objective for the stock is $43, and the consensus target is $42. Rowan closed Wednesday at $36.

From the largest integrated to the smallest wildcatting exploration and production company, everyone looking for oil and gas needs oilfield services. The rather high barrier to entry keeps most investors focused on the large cap leaders. The top stocks to buy at UBS can be put into a well-diversified portfolio and reside there for years to come.