Stocks in the energy sector of the S&P 500 have been some of the biggest losers year to date, which presents an opportunity as valuation of the big names in the oil services companies look cheap. I will summarize and pick the winner from the big 4: Schlumberger (SLB), Halliburton (HAL), Baker Hughes (BHI) and Weatherford (WFT).
Valuation
| Price/Earnings | PEG | Price/Book | Price/Earnings Multiply by Price/Book | |
| Schlumberger | 18.4 | 0.94 | 2.87 | 52.8 |
| Halliburton | 9.6 | 0.38 | 2.17 | 20.8 |
| Baker Hughes | 10.4 | 0.47 | 1.1 | 11.4 |
| Weatherford | 44.4 | 5.13 | 1.19 | 52.8 |
Comments: Baker Hughes looks very attractive looking at Price/Earnings times Price/Book. Also it has the lowest Price/Book ratio. On the other hand, Schlumberger looks expensive.
Performance
| ROA | ROE | Profit Margin | EPS Quarterly Growth YOY | Revenue Quarterly Growth YOY | Dividend Yield | |
| Schlumberger | 9.49% | 16% | 12.4% | 41% | 21.85% | 1.51% |
| Halliburton | 14.1% | 25% | 11.87% | 23.1% | 30% | 1.06% |
| Baker Hughes | 7.09% | 11.3% | 8.32% | -1.2% | 18.34% | 1.4% |
| Weatherford | 1.3% | 2.8% | 2.14% | -11.59% | 26.91% | 0% |
Comments: Halliburton fares the best with the highest ROA, ROE and revenue growth. Although Baker Hughes had a drop of EPS and revenue, however it still was able to produce comparable profit margin as compared to Schlumberger and Halliburton, plus it was able to maintain a double digit ROE.
On the other hand, Weatherford is performing the worst, the only upside is that it scored a double digit revenue growth, however it looks dangerously priced based on valuation.
Financial Health
| Current Ratio | Debt to Equity | Working Capital (Million) | Market Capitalization (Million) | Cash Holding (Million) | |
| Schlumberger | 1.97 | 0.26 | 10,490 | 96,829 | 1,346 |
| Halliburton | 2.79 | 0.35 | 7,708 | 31,437 | 2,655 |
| Baker Hughes | 2.63 | 0.23 | 6,310 | 18,780 | 780 |
| Weatherford | 1.83 | 0.70 | 3,221 | 10,522 | 339 |
Comments: Except for Weatherford which is slightly over leveraged, the remaining three are financially strong.
Fundamental Analysis for Baker Hughes
Based on Income Statement
2010-03 | 2010-06 | 2010-09 | 2010-12 | |
Revenue Growth Rate | 4.57% | 32.89% | 20.87% | 8.46% |
Net Income Growth Rate | 53.57% | -27.91% | 174.19% | 31.37% |
Operating Margin | 8.59% | 6.88% | 9.93% | 12.71% |
Operating Margin Growth Rate | 38.98% | -19.92% | 44.43% | 27.94% |
Earnings Per Share Growth Rate | 51.85% | -43.9% | 156.52% | 30.51% |
Share Price Growth Rate (Based on closing price on the day after earning release) | 2.24% | -8.93% | 10.79% | 28.84% |
2011-03 | 2011-06 | 2011-09 | 2011-12 | 2012-03 | |
Revenue Growth Rate | 2.31% | 4.77% | 9.22% | 4.04% | -0.59% |
Net Income Growth Rate | 13.73% | -11.29% | 108.88% | -55.52% | 20.7% |
Operating Margin | 14.14% | 13.01% | 15.78% | 9.76% | 11.71% |
Operating Margin Growth Rate | 11.31% | -7.99% | 21.24% | -38.12% | 19.91% |
Earnings Per Share Growth Rate | 12.99% | -11.49% | 109.09% | -55.28% | 19.44% |
Share Price Growth Rate (Based on closing price on the day after earning release) | 24.01% | 3.44% | -33.02% | -11.39% | -9.27% |
The weak revenue growth in 2012-Q1 appears to be seasonal after comparing the two previous Q1. Also, the net income growth rate, operating margin growth rate and earnings per share growth rate are all better than 2011-Q1, which is a promising sign.
The share price appears to be decelerating its slide by a negative single digit rate (-9.27%) with the improvement of earnings per share growth rate. This is a good sign.
According to Reuters, the mean long term growth based on consensus stands at 19.86%, which is another promising sign.
Technical Analysis for Baker Hughes
(Click to enlarge)
Chart courtesy of StockCharts.com
Baker Hughes is still looking bearish as it is struggling to break the 50 Day moving average. However it is facing a strong support within the range of 39-43. The crossover of MACD line crossing the signal line indicates a reversal is bound to happen.
Disclosure: I am Long for Baker Hughes.
