Sterne Agee CRT Cuts Large-Cap Oilfield Service Stocks En Masse

• Shares of Schlumberger Limited. SLB, Halliburton Company HAL and Baker Hughes Incorporated BHI are all lost around 10 percent in the last one month.
• Sterne Agee CRT’s Stephen D. Gengaro maintained Buy ratings on all three companies, while reducing their price targets.
• Gengaro said that expectations for upstream capital spending were now lower, and recommended owning the highest quality names.

While upstream capital spending is likely to be determined by crude oil prices over the next several months, spending is expected to decline significantly for the second consecutive year in 2016, analyst Stephen Gengaro mentioned. He added that upstream capital spending is expected to be down 25-30 percent in North America and 10-15 percent internationally in 2016.

The downward revision in the 2016-2017 EPS estimates for Schlumberger, Halliburton and Baker Hughes reflect lower revenue and margin assumptions in view of the weaker upstream spending outlook, the analyst commented.

Schlumberger

The price target has been reduced from $90 to $87. The EPS estimate for 4Q15 has been revised down from $0.70 to $0.61. The EPS estimates for 2016 and 2017 have been reduced from $2.95 to $2.45 and from $4.00 to $3.45, respectively.

“SLB continues to be one of our favorite names owing to its excellent track record navigating downturns and generating free cash,” Gengaro wrote.

Halliburton

The price target has been reduced from $43 to $41. The EPS estimates for 2016 and 2017 have been revised down from $1.25 to $0.95 and from $2.25 to $2.00, respectively.

Gengaro believes that owning Halliburton’s stock is the “best way gain exposure to the eventual rise in U.S. activity.”

Baker Hughes

The price target has been reduced from $67 to $65. The EPS estimates for 2016 and 2017 have been revised down from $0.20 to ($0.10) and from $1.80 to $1.55, respectively.

In the report Sterne Agee CRT noted, “We believe the downside risk to BHI shares is about $38 if the HAL deal was to fall apart. That being said, we continue to believe the two companies are very focused on meeting regulatory requirements and completing the merger.”