Deutsche Bank came out this week saying some top oil field services names may be poised to have an outstanding 2014. It reasons that exploration and production (E&P) companies are hitting all-time usage levels in the major shale plays around the country which bodes well for the oil services sector. Demand should remain strong for offshore drilling as well domestically. It offers seven of its top oil services stocks in 2014. Two of these selections occupy heavy weightings within my own portfolio and are highlighted below.
Hercules Offshore (HERO) is a small (~$1B market capitalization/$1.9B enterprise value) oil services concern. It possesses the third largest jackup fleet (~40 jackup rigs) in the world. Hercules is Deutsche's favorite small cap play in the sector for 2014.
Deutsche Bank's analyst is not the only one that has a positive viewpoint on this oil services concern. The median price target by the 17 analysts that cover the stock is $9 a share. This is more than 35% above the current price of $6.50 of HERO. An insider also purchased 100,000 shares in early November in a vote of confidence.
Hercules is a 2014 earnings' story. The company lost ~45 cents a share in FY2012 before turning around to post two dimes a share in profit in FY2013. Earnings are projected to explode in FY2014 with the consensus calling for 75 cents a share in the black in the New Year. After growing revenues better than 20% in FY2013, the company is projected to see almost 30% sales gains in FY2014.
Deutsche Bank also has a positive view on oil services giant Halliburton (HAL). I have been a big fan and have held this oil services concern for over a year. The shares are up some 60% over that time frame but I still like the company's long term prospects. Deutsche echoes this view and believes Halliburton will continue to benefit from "robust levels of domestic drilling activity and a pickup in international markets"
Halliburton is selling at a much cheaper forward PE (under 12x forward earnings) than the overall market multiple (~15x forward earnings). The stock also sports a five year projected PEG of under 1 (.73).
The mean analyst price target of the 29 analysts that cover the stock is just north of $65 a share, ~30% above Halliburton's current stock price. The current consensus calls for the company's earnings to increase by a third year over year on a 10% revenue gain in FY2014.
As the domestic energy boom continues unabated in 2014, both of these oil services concerns are well-positioned to capitalize on growing demand from E&P players. Both stocks offer solid valuations at current levels.