Jefferies Just Hiked These Oil Stocks, Firm Prefers Onshore Business

In a report published Friday, Jefferies analyst Brad Handler upgraded the ratings on three oil stocks following a 16 percent decline in the OSX since early-May. The analyst added that the upgraded names had declined an average of 23 percent and now reflected “a more realistic recovery scenario, including presumably a very muted 2H15.”

Analyst Brad Handler upgraded the ratings on Superior Energy Services, Inc. SPN and Weatherford International Plc WFT from Hold to Buy and the rating on Forum Energy Technologies Inc FET from Underperform to Hold. However, the price targets have been reduced:

• Superior Energy: From $28 to $25
• Weatherford: From $15 to $14
• Forum Energy: From $20 to $19

Handler said that of the three upgrades, Weatherford was “arguably most notable.” The analyst believes that investors do not need to “embrace lofty earnings power to find value in the shares.”

In the report Jefferies noted, “Expect a less optimistic tone for 2H15 in the upcoming earnings season. The oil price fall likely deflates what was setting up to be an optimistic tone during OFS 2Q earnings season - even if results look likely to disappoint at least modestly across much of our coverage and 3Q estimates had modest downside risk, in our view.”

Despite the decline in oil price, Jefferies’ Energy team “retains its recovery outlook,” the report said, while adding, “…we have optimism June may have brought U.S.'s production peak.” Handler stated that their “preferred exposure within OFS” remained “services weighted to global onshore activity.”