2 Oil Services Firms With Underappreciated Growth Prospects

Includes: ATW, OIS
by: Bret Jensen

It is getting harder to find bargains in the market after the rally of the last three months. One of the few sectors I am still bullish on is the energy sector. The United States is in the early innings of becoming energy independent. Here are two oil services firms with cheap valuations and good growth prospects to consider.

"Oil States International (NYSE:OIS) 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 is a good growth play at $83 a share:

  1. Williams Financial Group just initiated the shares as a "buy" with a $112 a share price target. William Blair and Dahlman Rose have also initiated the shares with positive ratings over the past six weeks. The median price target by the 10 analysts that cover the stock is $103.
  2. The company has beat earnings estimates each of the last twelve quarters. The average beat over consensus for the last four quarters has averaged 11%.
  3. Consensus earnings estimates for both FY2012 and FY2013 have both moved up nicely over the previous two months.
  4. The stock sells for a tiny five year projected PEG (.27) and for just 10 times forward earnings.

"Atwood Oceanics (NYSE:ATW) is an offshore drilling contractor, engages in the drilling and completion of exploratory and developmental oil and gas wells worldwide. The company owns 10 mobile offshore drilling units located in the U.S. Gulf of Mexico, South America, the Mediterranean Sea, west Africa, Southeast Asia, and Australia. It also has an ultra-deepwater semisubmersible, two ultra-deepwater drillships, and three high-specification jack ups under construction" (Business description from Yahoo Finance)

4 reasons ATW is a good value at $46 a share:

  1. The company should book just under 20% revenue growth in FY2012. Analysts project 30% sales increases in FY2013. It also sports a minuscule five year projected PEG (.59).
  2. The stock is a solid value at just over 9 times forward earnings and under 10 times operating cash flow.
  3. The company has averaged double digit growth for both earnings and revenues over the past five years. The stock is also selling in the bottom third of its five year valuation range based on P/B, P/S and P/CF.
  4. S&P has a "Buy" rating and projects Atwood will grow earnings at a 19% CAGR over the next three years.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OIS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.