We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
The wind is at the back of the Oil and Gas-Field Services Industry as it is poised for growth in the coming year, driven by favorable crude pricing and robust demand for oilfield services. The industry comprises companies that play a pivotal role in supporting exploration and production activities.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil and Gas – Field Services is a 22-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #66, which places it in the top 26% 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.
The oil-services companies provide a wide range of services, including manufacturing, repair, and maintenance of wells, drilling equipment, leasing of drilling rigs, seismic testing, and transportation solutions. They also assist upstream energy players in locating oil and natural gas reserves, drilling, and evaluating hydrocarbon wells.
Therefore, the fortunes of oilfield services businesses are closely tied to the expenditures of upstream firms. Below we highlight why it is time to buy these companies and the related ETFs.
Favorable Oil Prices Boosting Demand
There has been a remarkable surge in oil prices lately, with West Texas Intermediate crude trading at around $86 per barrel. This robust pricing environment bodes well for exploration and production activities, driving increased demand for oilfield services. Oilfield service companies play a crucial role in efficiently setting up oil wells, making them essential partners in capitalizing on the current attractive commodity prices (read: Energy ETFs in Focus as Saudi Likely to Prolong Output Cuts).
Digital Solutions Transforming Operations
Oilfield service players are embracing digital solutions to join the current digitization boom across all sectors. Oilfield companies have been implementing digital platform strategies to accelerate returns and reduce cycle times. These innovations not only enhance productivity and efficiency but also cut costs and reduce carbon emissions, ultimately optimizing cash flows for both service providers and their clients.
Growth in International & North American Markets
The third winning trend is the anticipated growth in both international and North American markets. Favorable conditions in the upstream sector are expected to lead to increased capital spending, further driving the demand for oilfield services.
As countries worldwide invest heavily in liquefied natural gas (LNG) terminals, some oilfield service companies are diversifying their portfolios by securing contracts for manufacturing equipment used in LNG facilities. This strategic move not only capitalizes on the growing LNG sector but also contributes to reducing carbon emissions.
Subdued Global Steel Prices
Since oil prices have been on uptrend for the past few months, there are chances of increased capex by drillers. Steel industry supplies materials to build and expand oil drilling operations. Now, with steel prices currently subdued, oil-services companies have every chance of win out of this situation.
Industry's Current Valuation
Since oil services companies are debt-laden and capital-intensive, it makes sense to value them based on the EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization) ratio. On the basis of the trailing 12-month EV/EBITDA, the industry is currently trading at 8.98X compared with the S&P 500’s 13.47X and sector’s 3.49X. Over the past five years, the industry has traded as high as 12.27X, as low as 1.00X, with a median of 7.99X.
Image: Bigstock
Time for Oilfield Services ETFs?
The wind is at the back of the Oil and Gas-Field Services Industry as it is poised for growth in the coming year, driven by favorable crude pricing and robust demand for oilfield services. The industry comprises companies that play a pivotal role in supporting exploration and production activities.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil and Gas – Field Services is a 22-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #66, which places it in the top 26% 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.
The oil-services companies provide a wide range of services, including manufacturing, repair, and maintenance of wells, drilling equipment, leasing of drilling rigs, seismic testing, and transportation solutions. They also assist upstream energy players in locating oil and natural gas reserves, drilling, and evaluating hydrocarbon wells.
Therefore, the fortunes of oilfield services businesses are closely tied to the expenditures of upstream firms. Below we highlight why it is time to buy these companies and the related ETFs.
Favorable Oil Prices Boosting Demand
There has been a remarkable surge in oil prices lately, with West Texas Intermediate crude trading at around $86 per barrel. This robust pricing environment bodes well for exploration and production activities, driving increased demand for oilfield services. Oilfield service companies play a crucial role in efficiently setting up oil wells, making them essential partners in capitalizing on the current attractive commodity prices (read: Energy ETFs in Focus as Saudi Likely to Prolong Output Cuts).
Digital Solutions Transforming Operations
Oilfield service players are embracing digital solutions to join the current digitization boom across all sectors. Oilfield companies have been implementing digital platform strategies to accelerate returns and reduce cycle times. These innovations not only enhance productivity and efficiency but also cut costs and reduce carbon emissions, ultimately optimizing cash flows for both service providers and their clients.
Growth in International & North American Markets
The third winning trend is the anticipated growth in both international and North American markets. Favorable conditions in the upstream sector are expected to lead to increased capital spending, further driving the demand for oilfield services.
As countries worldwide invest heavily in liquefied natural gas (LNG) terminals, some oilfield service companies are diversifying their portfolios by securing contracts for manufacturing equipment used in LNG facilities. This strategic move not only capitalizes on the growing LNG sector but also contributes to reducing carbon emissions.
Subdued Global Steel Prices
Since oil prices have been on uptrend for the past few months, there are chances of increased capex by drillers. Steel industry supplies materials to build and expand oil drilling operations. Now, with steel prices currently subdued, oil-services companies have every chance of win out of this situation.
Industry's Current Valuation
Since oil services companies are debt-laden and capital-intensive, it makes sense to value them based on the EV/EBITDA (Enterprise Value/Earnings before Interest Tax Depreciation and Amortization) ratio. On the basis of the trailing 12-month EV/EBITDA, the industry is currently trading at 8.98X compared with the S&P 500’s 13.47X and sector’s 3.49X. Over the past five years, the industry has traded as high as 12.27X, as low as 1.00X, with a median of 7.99X.
ETFs in Focus
VanEck Oil Services ETF (OIH - Free Report) ) – Up 16% YTD
SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report) ) – Up 21.6% YTD
iShares U.S. Oil Equipment & Services ETF (IEZ - Free Report) ) – Up 17.1% YTD
Invesco Oil & Gas Services ETF (PXJ - Free Report) ) – Up 22.5% YTD