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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 Ltd., Halliburton Co., RPC Inc. 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.
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.
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.
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.
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.
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.
Why Haven’t You Looked at Zacks' Top Stocks?
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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, RPC and ProPetro
For Immediate Release
Chicago, IL – October 13, 2022 – Today, Zacks Equity Research discusses Schlumberger Ltd. (SLB - Free Report) , Halliburton Co. (HAL - Free Report) , RPC Inc. (RES - Free Report) and ProPetro Holding Corp. (PUMP - Free Report) .
Industry: Oilfield Services
Link: https://www.zacks.com/commentary/1990790/4-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 Ltd., Halliburton Co., RPC Inc. 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
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.
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.
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.
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.
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.
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.
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.
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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.