Credit Suisse Likes Core Laboratories Better As A Company Than As A Stock

While Core Laboratories N.V. CLB is a “best-in-class technology and data management service provider to the O&G sector,” there are two headwinds for the stock, Credit Suisse’s Gregory Lewis said in a report. He initiated coverage of the company with a Neutral rating and a price target of $115.

Core Laboratories has a consistent track record of industry-leading returns, and has been returning cash to shareholders through dividends and repurchasing share buybacks. “Our call is not on the company…but on the stock,” analyst Lewis commented. He cited two headwinds as:

• A lower-for-longer offshore cycle
• Frugal customer spending, resulting in a slower margin recovery

Stock Valuation

Core Laboratories is considered as a “safety stock” and has outperformed the OSX by 400bps year-to-date and by 1,200bps over the past year.

Having historically traded at a premium valuation to OFS peers, the company’s stock does look cheap, Lewis noted. He added that Core Laboratories had generated premium EBIT margins of 27 percent and superior returns on capital of 47 percent over the last decade, which puts the company “at the head of the class” even compared to Schlumberger Limited. SLB, which generated ~20 percent EBIT and 13 percent ROC over the last decade.

“Our Neutral rating on CLB is more about the challenges facing the pace of the recovery of CLBs underlying business and increased competition than a valuation call,” the analyst commented.

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