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The business scenario for upstream operations is bright, with the crude price already returning to its glorious days. As drillers return to the oil patches, demand for oilfield services has improved significantly. Thus, the outlook for the Zacks Oil and Gas- Field Services industry is promising again.
Among the frontrunners in the industry that will possibly make the most of the improving business scenario are Schlumberger Ltd., Halliburton Co., Baker Hughes Co. and ProPetro Holding Corp.
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.
Surging Oil Price: The price of West Texas Intermediate (WTI) crude is trading higher than the $120-per-barrel mark, marking a massive improvement in the past year. The commodity's price is likely to rise in the coming days since there has been a disruption in the energy market owing to sanctions on Russia following the prolonged Ukraine war. This, in turn, 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. Starting 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, thereby securing higher earnings.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil and Gas – Field Services is a 27-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #76, which places it in the top 30% 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 risen 15.5% over this period against the S&P 500's decline of 9.1% and the broader sector's 33.9% rally.
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 13.63X compared with the S&P 500's 12.48X and sector's 4.30X.
Over the past five years, the industry has traded as high as 15.10X, as low as 1.94X, with a median of 9.42X.
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.
Schlumberger, carrying a Zacks Rank #3 (Hold), reported strong first-quarter results, driven by robust drilling activities in North America, Latin America and the Middle East. Higher evaluation and intervention activities across the international offshore markets also buoyed the company's first-quarter results.
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, Halliburton expects industry fundamentals to remain conducive, which will spur growth in both North American and overseas markets.
Halliburton, with 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.
Baker Hughes Company: Baker Hughes is well placed to derive earnings from improving demand for oilfield services. It secures additional cashflows, backed by increasing orders from its oilfield services business segment.
Baker Hughes, with a Zacks Rank of 3, is expecting energy demand to remain strong, ultimately driving its products and services.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared+40.3%, +48.2%, +67.6%, +94.4%, and+95.3%. Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Schlumberger, Halliburton, Baker Hughes and ProPetro Holding
For Immediate Release
Chicago, IL – June 15, 2022 – Today, Zacks Equity Research discusses Schlumberger Ltd. (SLB - Free Report) , Halliburton Co. (HAL - Free Report) , Baker Hughes Co. (BKR - Free Report) and ProPetro Holding Corp. (PUMP - Free Report) .
Industry: Oil & Gas Fieldservices
Link: https://www.zacks.com/commentary/1938526/4-oilfield-services-stocks-to-gain-from-the-flourishing-industry
The business scenario for upstream operations is bright, with the crude price already returning to its glorious days. As drillers return to the oil patches, demand for oilfield services has improved significantly. Thus, the outlook for the Zacks Oil and Gas- Field Services industry is promising again.
Among the frontrunners in the industry that will possibly make the most of the improving business scenario are Schlumberger Ltd., Halliburton Co., Baker Hughes Co. and ProPetro Holding Corp.
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
Surging Oil Price: The price of West Texas Intermediate (WTI) crude is trading higher than the $120-per-barrel mark, marking a massive improvement in the past year. The commodity's price is likely to rise in the coming days since there has been a disruption in the energy market owing to sanctions on Russia following the prolonged Ukraine war. This, in turn, 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. Starting 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, thereby securing higher earnings.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil and Gas – Field Services is a 27-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #76, which places it in the top 30% 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 risen 15.5% over this period against the S&P 500's decline of 9.1% and the broader sector's 33.9% rally.
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 13.63X compared with the S&P 500's 12.48X and sector's 4.30X.
Over the past five years, the industry has traded as high as 15.10X, as low as 1.94X, with a median of 9.42X.
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.
Schlumberger, carrying a Zacks Rank #3 (Hold), reported strong first-quarter results, driven by robust drilling activities in North America, Latin America and the Middle East. Higher evaluation and intervention activities across the international offshore markets also buoyed the company's first-quarter results.
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.
In the past 60 days, ProPetro Holding, carrying a Zacks Rank #2 (Buy), has witnessed upward earnings estimate revisions for 2022. You can see the complete list of today's Zacks #1 Rank stocks here.
Halliburton Company: Halliburton is also a leading oilfield service player, capitalizing on improving demand for oilfield services. Looking ahead, Halliburton expects industry fundamentals to remain conducive, which will spur growth in both North American and overseas markets.
Halliburton, with 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.
Baker Hughes Company: Baker Hughes is well placed to derive earnings from improving demand for oilfield services. It secures additional cashflows, backed by increasing orders from its oilfield services business segment.
Baker Hughes, with a Zacks Rank of 3, is expecting energy demand to remain strong, ultimately driving its products and services.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared+40.3%, +48.2%, +67.6%, +94.4%, and+95.3%. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.