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Bill Costello
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I have moved to Westwood Holdings where I cover E & P, Oil Service, Utilities, and Refiners. I also co manage the small cap value fund.
  • Q2 Preview Oilfield Service names 5 comments
    Jun 22, 2010 5:41 PM | about stocks: BHI, CLB, CAM, SLB, WFT, HAL

    Oilfield Service Second Quarter 2010 Earnings Preview

    SUMMARY

    We think second quarter earnings for the service names will come in at or above current first call

    consensus numbers. These strong earnings will be led by increased activity and improvements in pricing

    across almost all markets. The companies that are most North American land oriented will see the

    greatest pick up in activity and margins especially if they are leveraged to the emerging shale plays.

    INDIVIDUAL COMPANIES

    Baker Hughes (NYSE:BHI) buy rated: BHI reports 8/3 with an 8:30 Eastern conference call. The dial in number

    is (800) 374-2469 confirmation “Baker Hughes conference call”. We think BHI will report 44 cents,

    which is 2 cents above the 42 cent consensus. It should be a solid quarter with the integration of BJ

    Services a key talking point on the call and forward guidance another focus due to the GOM disaster.

    Cameron (NYSE:CAM) buy rated. CAM has not yet chosen a date for their earnings release but it should be late

    July or early August. We believe CAM will report 56 cents or 2 cents ahead of the 54 cent consensus.

    We think the beat will be driven by the strong North American land trends and think the call will focus

    on the outlook for the rest of the year and the impact from the GOM.

    Core Labs (NYSE:CLB) buy rated. CLB hasn't chosen a date for their earnings release but it will probably be

    the last week in July. We believe CLB will report 74 cents or 2 cents ahead of consensus of 72 cents (we

    have adjusted our estimates for the early July 2-1 stock split). The call should focus on their high returns

    and the outlook for continued growth.

    Halliburton (NYSE:HAL) buy rated. HAL reports earnings 7/19 with a call at 9:00 Eastern. The dial in number

    is (703) 639-1308 with no code. We expect earnings of 36 cents or 1 cent above the first call number of

    35 cents. We should see the strength of North America drive these results and the conference call should

    center on the trajectory of North American activity and the magnitude of margin increase this activity

    drives. Forward guidance will be important as this kicks off oil service earnings season.

    Schlumberger (NYSE:SLB) buy rated. SLB reports 7/23 with a call at 9:00 Eastern. The dial in is (800) 230-

    1096 with the code “Schlumberger earnings conference call”. We expect 68 cents spot on the 68 cent

    consensus number. We believe the forward outlook and the restructuring of the North American business

    unit will be the focal points of the conference call.

    Weatherford (NYSE:WFT) hold rated. WFT reports earnings 7/20 with a call at 9:00 Eastern. The dial in

    number is (866) 730-5763 password “Weatherford”. We think WFT will report 8 cents or 1 cent above

    the First Call consensus of 7 cents. We think the key talking points from the call will be the improvement

    in the global markets and the possibility of margin improvement. Also we would expect WFT to high

    light the fact they have the least GOM exposure of their peer group.

    VALUATION

    We find the valuation of the group extremely attractive with the market pull back and the selling

    associated with the GOM disaster. The group is trading at 16 X our (reduced) 2011 earnings estimates

    (14.8 X if we exclude CLB from the calculation). The group has traditionally traded over 20 X forward

    numbers. On an EV to EBITDA basis the group trades at 6.7 X 2011 numbers (ex CLB) versus a

    historical range of 8.5 to 10 X. We feel our numbers are conservative based on our best estimates of the

    activity slowdown in the GOM

    CONCLUSION

    We find Halliburton (HAL) to be especially attractive in light of their possessing the lowest forward

    multiple at 13.5 X 2011 earnings combined with the best exposure to the oily shale plays such as the

    Bakken Shale. We see 50% upside to our target price from these levels.

    We also like Baker Hughes (BHI) due to the low valuation and the potential upside from the BJ Services

    acquisition. BHI trades at 14.1 X 2011 earnings and at 6 X 2011 EV/EBITDA.

    We would highlight these as the two most attractive names in our oil service universe followed by

    Schlumberger (SLB), Cameron (CAM), Core Labs (CLB), and Weatherford (WFT). We do think all these

    names will have good second quarters and are poised to outperform in the second half of the year



    Disclosure: No positions
    Themes: Oilfield Service Stocks: BHI, CLB, CAM, SLB, WFT, HAL
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Comments (5)
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  • Jeep
    , contributor
    Comments (1874) | Send Message
     
    Good work, Bill.
    24 Jun 2010, 11:30 AM Reply Like
  • Bill Costello
    , contributor
    Comments (1291) | Send Message
     
    Author’s reply » Thanks I think completions in the Bakken are really becoming an issue.
    24 Jun 2010, 01:54 PM Reply Like
  • Jeep
    , contributor
    Comments (1874) | Send Message
     
    Do you think that it will slow down drilling?
    24 Jun 2010, 02:21 PM Reply Like
  • Bill Costello
    , contributor
    Comments (1291) | Send Message
     
    Author’s reply » No not really there are 125 rigs there today. It will hurt some efficiencies and lower quality rigs may be used but I think it will hurt production numbers for some companies.
    24 Jun 2010, 03:02 PM Reply Like
  • Jeep
    , contributor
    Comments (1874) | Send Message
     
    Is it mainly a question of getting scheduled for frac jobs?
    24 Jun 2010, 03:15 PM Reply Like
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