Bill Costello's  Instablog

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 (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 (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 (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 (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 (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 (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