Oppenheimer Initiates Coverage On Oilfield Services

Oppenheimer initiated coverage on three Oilfield Services companies with Outperform ratings Wednesday and rated a fourth at Perform.  Below are highlights from the analyst reports.

Halliburton Company HAL - Outperform, $71 price target

“Halliburton's stock has retreated ~40 percent in conjunction with falling oil prices and the proposed merger with Baker Hughes. However, we believe the risk/reward is skewed very positively as the market is pricing in significant reductions in activity and, we think, taking a myopic view on the combination with Baker. The proposed merger will create a more valuable entity that can more effectively compete with Schlumberger internationally and will remove a major competitor from the marketplace. Meanwhile, Halliburton continues to implement self-help measures to improve profitability, FCF generation and strengthen its balance sheet. We believe investors that look past the uncertainty in 2015 will be handsomely rewarded over the next two years.”

Halliburton recently traded at $41.04, up 2.19 percent.

Weatherford International Plc WFT - Outperform, $19 price target

“While recent returns and free cash flow generation have been disappointing, the company is orchestrating a change of culture to focus on profitability and cash generation. This evolution may take longer than some would hope for, but tangible progress has been made as free cash flow is expected to turn positive in 2015 and likely keep the upward momentum into 2016. We believe the recent stock price weakness gives investors another opportunity to play this emerging turnaround story. Follow the money (cash flows) to track progress in 2015 as operating earnings for this company can be misleading.”

Weatherford International recently traded at $13.41, up 2.76 percent.

Schlumberger Limited. SLB - Outperform, $114 price target

“Schlumberger is the world’s premier oilfield services company with unparalleled technology, scale, breadth of products and services and geographic diversification. We view the drop in oil prices as an opportunity. The stock tends to outperform peers in down markets, and the company is clearly well positioned to benefit from an increase in E&P spending should oil prices rebound. We believe investors should take advantage of recent stock price weakness and build or add to positions at these levels.”

Schlumberger recently traded at $86.23, up 1.19 percent.

Baker Hughes Incorporated BHI - Perform, $71 price target

“Halliburton is paying a fair value for acquisition target Baker Hughes, we believe, and we do not see any additional suitors sweetening the pot. The combination would create the largest oilfield services company in the world and pose a greater challenge to best-in-class Schlumberger. However, given the limited upside to deal closing in 2H15 and the substantial downside risk should the deal fall through, we recommend investors gain exposure to the combined entity through Halliburton instead. Despite the extensive overlap of the two businesses, we do believe the merger will be successful with Halliburton likely divesting $5 billion of assets to clear antitrust concerns.”

Baker Hughes recently traded at $58.05, up 2.29 percent.