RPC, Inc. (RES - Free Report) cannot seem to catch a break. The oilfield service provider, which has lost 55.3% of its value over the past year, is traversing rough waters amid several headwinds. Shares of RPC have declined 31% so far this year against the industry’s 14% gain and the energy sector’s 7.5% rise.
Let’s delve into the factors that have taken a toll on the firm.
Intensified competition in the domestic market has left limited room for the oilfield services companies to charge premium prices for services offered. Moreover, a slowdown in demand for pressure pumping services in the shales plays a negative role in RPC’s prospects. Weakness that stemmed from lower activity levels and pricing in the company’s pressure pumping service business significantly affected operating income, which can be seen in first-quarter 2019 results.
Explorers and producers are constrained by the reduction in capacity for borrowings and an increase in the cost of capital. Also, explorers are facing constant pressure from investors so that they focus more on providing higher returns instead of production growth. These headwinds are likely to lower investments by explorers and producers in the land market of North America. Hence, conservative customer spending is going to hurt the demand for the company’s oilfield services.
Between 2017 and 2018, RPC’s cost of revenues increased almost 73% and 13%, respectively, due to the rise in maintenance expenses, fuel costs and elevated materials and supplies expenses. Although costs decreased in first-quarter 2019, it is expected to escalate again, with rise in activity levels. The hike in expenses associated with the ramp-up of oilfield services hurt the company’s earnings. Moderate recovery in oilfield services in the domestic market will likely lead to further increase in costs, which is a serious concern for RPC.
Although the company is strongly committed toward returning cash to stockholders through dividend payments and share buybacks, its dividend yield is not impressive. In fact, RPC’s current dividend yield of 2.9% is significantly lower than 4.2% yield of the stocks belonging to the energy sector.
The Oil and Gas - Field Services industry, to which RPC belongs, currently has a Zacks Industry Rank of 162 out of 255 (Bottom 36%). Also, a beta of 1.06 is allocated to RPC. As the industry is not expected to witness good performance in the coming days, the stock will likely underperform the market.
The above-mentioned factors are being reflected in the company’s downward earnings estimate revisions.
Earnings Estimate Revisions
The Zacks Consensus Estimate for RPC’s 2019 earnings is pegged at 20 cents, which has witnessed no upside but five downside estimate revisions in the past 60 days. This suggests a fall of 75.6% from the year-ago reported figure.
Given these headwinds, RPC seems a risky bet that investors should exit. This is also supported by its Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked players in the energy space are Approach Resources Inc. (AREX - Free Report) , Noble Corporation (NE - Free Report) and Cheniere Energy, Inc. (LNG - Free Report) . While Approach Resources currently sports a Zacks Rank #1 (Strong Buy), Noble and Cheniere have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Approach Resources beat earnings estimates thrice in the trailing four quarters, with a positive surprise of 12.7%.
Noble’s 2019 earnings per share are expected to rise 6.5% year over year.
Cheniere’s 2019 earnings per share are expected to gain 8.4% year over year.
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