Oil States 'Looks Fairly Valued,' According To Morgan Stanley

Oil States International, Inc. OIS would likely witness a continued decline in its Offshore Products backlog and ordering activity over the next several quarters, Morgan Stanley’s Ole Slorer said in a report. He initiated coverage of the company with an Equal-weight rating and a price target of $40.

Terming Oil States as a “high-quality business,” analyst Slorer noted that the company had generated solid margins and FCF for the past several years. He added, however, that the stock appeared fairly valued at present, since there were limited catalysts in the near term, while Oil States’ robust balance sheet had driven the valuation higher.

Limited Near-Term Catalysts

Slorer noted that offshore orders and onshore revenues were moving “in opposite directions.”

A significant rebound in US well completions in 2017 and 2018 is likely to drive substantial revenue growth and margin expansion at the company’s Well Site Services business over the next couple of years.

The analyst pointed out, however, that Offshore Products, which accounted for 65 percent of Oil States’ revenues in 2015, “is heavily skewed to later-cycle offshore infrastructure development (TLPs,FPSOs) and looks likely to trend lower for the next several quarters, weighing on consolidated results.”

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