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Drilling is hotter than ever. Oil States International, Inc. (OIS - Free Report) is expected to grow earnings by the double digits for the third consecutive year in 2012 as demand in the energy sector kicks into high gear. Yet this Zacks #1 Rank (Strong Buy) is also cheap. It is trading with a forward P/E of just 11.8.

Drill, Baby, Drill

Oil States has two major divisions: Offshore Products and Well Site Services. Offshore Products manufactures deepwater capital equipment which is used on floating production platforms, subsea pipelines and floating drilling rigs.

Well Site Services provides land drilling with its fit-for-purpose drilling rigs in West Texas and the Rocky Mountain region.

The company rents tools to producers to be used in completion and production of a well. Oil States' rental tool division is focused on the Rockies, Barnett Shale, the Mid Continent and in the Fayetteville Shale oil producing regions and is growing in the popular Marcellus, Haynesville and Bakken shale regions.

Oil States Beat Again in the Fourth Quarter

On Feb 16, Oil States reported its fourth quarter results and kept its amazing earnings surprise streak going. It beat for the 17th consecutive time.

As you can see, its last miss was all the way back in October 20007 which is an incredible track record given the difficulties most companies encountered during the Great Recession.

Earnings per share were $1.72 compared to the Zacks Consensus Estimate of $1.70.

Revenue soared 43% to $995.8 million from $696.8 million due to improved earnings in all of the company's different business segments and acquisitions that closed in the fourth quarter of the prior year which provided Oil States with new markets and areas of growth.

The energy sector is booming. Its accommodation segment, which provides lodging and village rooms, jumped 36% to 4,588 rooms from the end of 2010 as it continued to expand in Canada, Australia and the U.S. shale plays.

Well site services saw revenue rise 34% to $186.8 million due to higher revenue and margins in the rental tool business. Demand was particularly strong in the Bakken, Eagle Ford, Marcellus and Permian Basin regions due to increased drilling and completion activity.

Offshore products also had a great quarter, as revenue rose 58% to $186.1 million. The backlog reached a new record of $535 million as of Dec 31, 2011 up from $354 million at the end of 2010. One of the large awards during the quarter included a major pipeline connector order in Brazil.

Tubular services, the company's largest segment, was also going gangbusters in the fourth quarter as revenue climbed 30% to $386 million from $297.4 million in the year ago quarter. The rise was due mainly to the 26% year-over-year increase in OCTG shipments. Gross margin also rose to 5.6% from 4.2% primarily due to product mix and industry pricing.

Double Digit Growth Expected in 2012

After posting earnings growth of 77.6% in 2011, Oil States is poised for more of the same in 2012.

Analysts are bullish about the company. The 2012 Zacks Consensus Estimate has risen to $7.09 from $7.05 in the last 60 days.

This is further earnings growth of 20.6%.

Even Cheaper Than Last Summer

I last profiled Oil States in June 2011. It was trading with a forward P/E of 13.8x.

Since then, the stock sold off in the summer stock market sell-off and has since rebounded in this huge 2012 rally.

Shares are near 3-year highs.

Still, because of rising earnings estimates, Oil States is cheaper than last summer. It now trades with a forward P/E of 11.8.

It also has an attractive price-to-book of 2.2. A P/B under 3.0 usually indicates value.

Additionally, the company has solid fundamentals such as a 1-year return on equity (ROE) of 17.6%. That is well above the average of the S&P 500 which is 13.4%.

Investors can use Oil States to get into the hot, and growing, energy sector at attractive valuations.

Tracey Ryniec is the Value Stock Strategist for She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at @TraceyRyniec.

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