Even After Its Pop Friday, This Driller Has Further Upside

| About: Oil States (OIS)
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Oil services firms continue to report earnings that are coming in much better than expected. I wrote the other day on Superior Energy Services' (NYSE:SPN) recent earnings beat and why it has further upside as I believe analysts have overstated the impact that low natural gas prices will have on oil field service demand. Oil States International (NYSE:OIS) also reported a blowout quarter Friday and the stock still looks like it is undervalued.

Key Highlights from Oil States' earnings report

  • Earnings came in higher than expected at $2.43 a share which was substantially higher than the $1.13 a share it earned in the same quarter last year. Analysts expected $1.79 a share.
  • Revenue improved to $1.1B from $760mm last year and also significantly over estimates.
  • Revenues were bolstered by an increase in liquids drilling that helped offset a decline in natural gas demand.

Oil States International - "Oil States International, Inc., through its subsidiaries, provides specialty products and services to the oil and gas drilling and production companies worldwide. It operates in four segments: Accommodations, Offshore Products, Well Site Services, and Tubular Services". (Business Description from Yahoo Finance)

4 reasons OIS still provides compelling value at $78 a share:

  • Even after Friday's 7% pop, OIS sells for less than 10 times forward earnings, under its five year historical average of 12 time forward earnings.
  • The company has now beat earnings estimates for twelve straight quarters. Consensus estimates for FY2012 and FY2013 had already risen over the past few months. Based on the latest earnings report, I would look for these estimates to be revised up further in the next few weeks.
  • The market is undervaluing the company's growth prospects judging from its ultra-low five year projected PEG (.28)
  • OIS is significantly under analysts' price targets, which will probably be raised soon given the huge beat on Friday. The current median analysts' price target for the 10 analysts the cover the stock is $104.50. Credit Suisse just revised its price target on OIS up to $108 from $105 and has an "Outperform" rating on the stock.

Disclosure: I am long SPN.