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SunTrust Says Now Is the Time to Buy the Oilfield Services Sell-Off
Even though oil has held its own pricewise this year, continuing to hover in the low to mid-$50s, investors have pounded the oil services sector. The PHLX Oil Service Sector Index (OSX) is down over 10% since January, and one Wall Street firm thinks it is high time to buy the dip. With the market looking tired, and the stocks already well off highs, now may indeed be the perfect time.
In a new research report, the oil services team at SunTrust Robinson Humphrey feels that the demand trends for the top oilfield services companies remain solid, noting that they are very positive on U.S. onshore services and equipment stocks. The bottom line? They say investors need to take advantage of the current weakness and buy the dip.
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The analysts have three stocks rated Buy that are their current highest conviction picks. We added a fourth that also looks like a very solid choice.
Halliburton
This company is a top pick for 2017 at SunTrust and is still down almost 25% from highs printed in the summer of 2014.
Halliburton Co. (HAL) is one of the world's largest providers of products and services to the energy industry. It serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.
The oilfield giant announced last year a $1 billion investment to develop huge potential oil fields in Ecuador and has entered into a long-time deal with Petroamazonas, an Ecuador-based company involved in the exploration and development of the country’s oil reserves. With oil looking to stabilize in the $40 to $50 range, this top oil service company is a great stock to buy on sale, as the oil recovery has shown some legs.
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Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. For investors looking for an oilfield services company to add, this is arguably the best, and analysts feel it will be a huge benefactor as the frac market has tightened significantly and prices are 20% to 30% off the lows.
Halliburton shareholders receive a 1.36% dividend. The SunTrust price target for the stock is $72. The Wall Street consensus target is $64.23. The shares closed Tuesday at $52.97.
Nabors Industries
This company provides drilling and rig services. Nabors Industries Ltd. (NBR) offers rig instrumentation, optimization software and directional drilling services. It also provides completion, life-of-well maintenance and plugging and abandonment of a well.
In addition, the company markets approximately 466 land drilling rigs for oil and gas land-based drilling operations in the United States, Canada and approximately 20 other countries worldwide; approximately 445 rigs for land well-servicing and workover services in the United States; 98 rigs for land well-servicing and workover services in Canada; 42 rigs for offshore drilling operations in the United States and internationally; and seven jackup units and components of trucks and fluid hauling vehicles.
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Top Wall Street analysts have stated that they think concerns over the company’s balance sheet are way overblown, and at current levels the shares are pricing in too modest of an industry recovery. In addition, the international exposure the company has helps to provide more stability.
Nabors investors receive a 1.67% dividend. SunTrust has a $20 price target. The consensus price objective is $19.46. Shares closed Monday at $15.74
RPC
This smaller, off the radar stock has solid upside potential. RPC Inc. (RES) provides a broad range of specialized oilfield services and equipment primarily to independent and major oilfield companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest, Appalachian and Rocky Mountain regions, and in selected international markets.
This stock also fits well in the SunTrust top ideas silo. While the company reported a fourth-quarter loss, SunTrust feels that pressure pumping demand could exceed the lofty numbers posted back in 2014, which could prove big for RPC.
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Shareholders receive a 1.03% dividend. SunTrust has a $25 target price. The consensus target is $24.11, and shares closed Tuesday at $19.45.
U.S. Silica
This company also has been absolutely smoked recently and has awesome upside potential. U.S. Silica Holdings Inc. (SLCA) is a leading producer of commercial silica used in the oil and gas industry, as well as in a wide range of industrial applications. Over its 115-year history, U.S. Silica has developed core competencies in mining, processing, logistics and materials science that enable it to produce and cost-effectively deliver over 260 products to the firm's customers across all end markets.
Shareholders receive a 0.48% distribution. The $72 SunTrust price target is higher than the consensus target of $64.75 and Tuesday's close at $52.24.
While oil could certainly become range-bound, with most people seeing $50 to $65 for the next two years, the oil services companies that help the most maximizing well production and yield could be the best stocks to buy.
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