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4 Oilfield Services Stocks to Gain From the Promising Industry
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Since the beginning of this year, the number of drillers in oil patches has increased significantly. Drilling activities will continue to rise since the crude pricing environment remains highly favorable. Thus, with explorers returning to prolific oil resources, demand for oilfield services will stay solid, making the outlook for the Zacks Oil and Gas- Field Services industry promising.
Among the frontrunners in the industry that will possibly make the most of the improving business scenario are Schlumberger Limited (SLB - Free Report) , Halliburton Company (HAL - Free Report) , RPC Inc. (RES - Free Report) and ProPetro Holding Corp. (PUMP - Free Report) .
About the Industry
The Zacks Oil and Gas - Field Services industry comprises companies that primarily engage in providing support services to exploration and production players. These companies help in manufacturing, repairing and maintaining wells, drilling equipment, leasing of drilling rigs, seismic testing, as well as transport and directional solutions, among others. Also, the companies help upstream energy players locate oil and natural gas and drill and evaluate hydrocarbon wells. Hence, oilfield services businesses are positively correlated to expenditures from upstream firms. Furthermore, with countries worldwide investing heavily in liquefied natural gas (LNG) terminals, a few oilfield service companies are extending their reach beyond the hydrocarbon fields and capitalizing on contracts for manufacturing equipment used in LNG facilities to decrease carbon emissions.
High Oil Price: The price of West Texas Intermediate crude is trading higher than the $85-per-barrel mark, following the agreement of OPEC+ for the biggest oil production cut since the onset of the coronavirus pandemic. The high commodity price is favorable for exploration and production activities, which will boost demand for oilfield service since oilfield service players assist drillers in efficiently setting up oil wells.
Digital Solutions: Oilfield service players are creating value for clients through digital solutions. With the introduction of a digital platform strategy, companies belonging to the industry are not only accelerating returns but also reducing cycle time. From increasing productivity and efficiency, oilfield service players are also reducing costs and carbon emissions, thereby optimizing cashflows.
Growth in International & North American Markets: Given the favorable upstream business scenarios, it is highly likely that capital spending will ramp up in both North American and international markets. Thus, demand for oilfield services will continue to grow this year and beyond, securing higher earnings.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil and Gas – Field Services is a 24-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #32, which places it in the top 13% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may consider, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500, Underperforms Sector
The Zacks Oil and Gas – Field Services industry has outperformed the Zacks S&P 500 composite over the past year but remained below the broader Zacks Oil – Energy sector.
The industry has fallen 3.8% over this period against the S&P 500’s decline of 18.2% and the broader sector’s 18.8% rally.
One-Year Price Performance
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes not just equity into account but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.
On the basis of the trailing 12-month EV/EBITDA, the industry is currently trading at 11.32X compared with the S&P 500’s 11.05X and sector’s 3.42X.
Over the past five years, the industry has traded as high as 15.21X, as low as 1.95X, with a median of 9.50X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
4 Oilfield Services Stocks Moving Ahead of the Pack
Schlumberger Limited: Schlumberger is a leading oilfield service player with operations in domestic and international markets. It is well placed to capitalize on the improving demand for oilfield services, given increasing drilling operations.
This Zacks Rank #3 (Hold) company’s portfolio of transition technologies could significantly help clients reduce their carbon footprint.
Price and Consensus: SLB
ProPetro Holding Corp: Thebusiness scenario for ProPetro Holding is bright, given the current high oilfield service demand. Thus, it secures handsome cashflows as it is a leading provider of pressure pumping and other complementary services.
Halliburton Company: Halliburton is also a leading oilfield service player, capitalizing on improving demand for oilfield services. Looking ahead, it expects industry fundamentals to remain conducive, which will spur growth in both North American and overseas markets.
Halliburton, with a Zacks Rank of 3, believes it is perfectly placed to benefit from this emerging multi-year upcycle based on its smart strategy, digital leadership and capital efficiency while aiming for a sustainable energy future. HAL’s cash flow generation capabilities and balance sheet strength should also ensure increased shareholder returns.
Price and Consensus: HAL
RPC Inc: RPC is a leading energy name offering a wide range of oilfield services to key exploration and production players. It has a conservative balance sheet and a proven business model that can manage to sail through numerous oilfield cycles.
RPC, with a Zacks Rank of 2 (Buy), has strong capabilities in executing multi-stage completion activities in unconventional wells.
Price and Consensus: RES
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4 Oilfield Services Stocks to Gain From the Promising Industry
Since the beginning of this year, the number of drillers in oil patches has increased significantly. Drilling activities will continue to rise since the crude pricing environment remains highly favorable. Thus, with explorers returning to prolific oil resources, demand for oilfield services will stay solid, making the outlook for the Zacks Oil and Gas- Field Services industry promising.
Among the frontrunners in the industry that will possibly make the most of the improving business scenario are Schlumberger Limited (SLB - Free Report) , Halliburton Company (HAL - Free Report) , RPC Inc. (RES - Free Report) and ProPetro Holding Corp. (PUMP - Free Report) .
About the Industry
The Zacks Oil and Gas - Field Services industry comprises companies that primarily engage in providing support services to exploration and production players. These companies help in manufacturing, repairing and maintaining wells, drilling equipment, leasing of drilling rigs, seismic testing, as well as transport and directional solutions, among others. Also, the companies help upstream energy players locate oil and natural gas and drill and evaluate hydrocarbon wells. Hence, oilfield services businesses are positively correlated to expenditures from upstream firms. Furthermore, with countries worldwide investing heavily in liquefied natural gas (LNG) terminals, a few oilfield service companies are extending their reach beyond the hydrocarbon fields and capitalizing on contracts for manufacturing equipment used in LNG facilities to decrease carbon emissions.
3 Trends Defining Oilfield Services Industry's Future
High Oil Price: The price of West Texas Intermediate crude is trading higher than the $85-per-barrel mark, following the agreement of OPEC+ for the biggest oil production cut since the onset of the coronavirus pandemic. The high commodity price is favorable for exploration and production activities, which will boost demand for oilfield service since oilfield service players assist drillers in efficiently setting up oil wells.
Digital Solutions: Oilfield service players are creating value for clients through digital solutions. With the introduction of a digital platform strategy, companies belonging to the industry are not only accelerating returns but also reducing cycle time. From increasing productivity and efficiency, oilfield service players are also reducing costs and carbon emissions, thereby optimizing cashflows.
Growth in International & North American Markets: Given the favorable upstream business scenarios, it is highly likely that capital spending will ramp up in both North American and international markets. Thus, demand for oilfield services will continue to grow this year and beyond, securing higher earnings.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil and Gas – Field Services is a 24-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #32, which places it in the top 13% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may consider, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500, Underperforms Sector
The Zacks Oil and Gas – Field Services industry has outperformed the Zacks S&P 500 composite over the past year but remained below the broader Zacks Oil – Energy sector.
The industry has fallen 3.8% over this period against the S&P 500’s decline of 18.2% and the broader sector’s 18.8% rally.
One-Year Price Performance
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes not just equity into account but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.
On the basis of the trailing 12-month EV/EBITDA, the industry is currently trading at 11.32X compared with the S&P 500’s 11.05X and sector’s 3.42X.
Over the past five years, the industry has traded as high as 15.21X, as low as 1.95X, with a median of 9.50X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
4 Oilfield Services Stocks Moving Ahead of the Pack
Schlumberger Limited: Schlumberger is a leading oilfield service player with operations in domestic and international markets. It is well placed to capitalize on the improving demand for oilfield services, given increasing drilling operations.
This Zacks Rank #3 (Hold) company’s portfolio of transition technologies could significantly help clients reduce their carbon footprint.
Price and Consensus: SLB
ProPetro Holding Corp: Thebusiness scenario for ProPetro Holding is bright, given the current high oilfield service demand. Thus, it secures handsome cashflows as it is a leading provider of pressure pumping and other complementary services.
For 2022 and 2023, ProPetro Holding, sporting a Zacks Rank #1 (Strong Buy), is likely to see earnings growth of 158.5% and 334.2%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: PUMP
Halliburton Company: Halliburton is also a leading oilfield service player, capitalizing on improving demand for oilfield services. Looking ahead, it expects industry fundamentals to remain conducive, which will spur growth in both North American and overseas markets.
Halliburton, with a Zacks Rank of 3, believes it is perfectly placed to benefit from this emerging multi-year upcycle based on its smart strategy, digital leadership and capital efficiency while aiming for a sustainable energy future. HAL’s cash flow generation capabilities and balance sheet strength should also ensure increased shareholder returns.
Price and Consensus: HAL
RPC Inc: RPC is a leading energy name offering a wide range of oilfield services to key exploration and production players. It has a conservative balance sheet and a proven business model that can manage to sail through numerous oilfield cycles.
RPC, with a Zacks Rank of 2 (Buy), has strong capabilities in executing multi-stage completion activities in unconventional wells.
Price and Consensus: RES