RPC's Risk-Reward Has Turned Unfavorable, According To Morgan Stanley

RPC, Inc. RES was downgraded Tuesday by Morgan Stanley, with the research firm telling investors that better opportunities exist elsewhere. 

The Analyst

Morgan Stanley's Ole Slorer. Slorer downgraded RPC, Inc. from Equal-weight to Underweight and has a price target of $25 for the stock. (See Slorer's track record here.)

The Thesis

No new major positive catalysts are ahead for RPC, and the risk-reward is unfavorable, Slorer said. The oilfield supplier has reinstated its dividend and is building new equpment, while its valuation has nearly reached prior cyclical peaks, according to Morgan Stanley.   

RPC's valuation — normalized for expanded capacity — is only 10 percent below prior peaks, Slorer said. The stock trades with a 30 percent EV/EBITDA premium to its peers but has "a similar growth outlook," the analyst said. 

RPC, Inc. has only 25 percent upside to Morgan Stanley's bullish scenario and 50 percent downside potential. Peer companies have more favorable risk-reward, the analyst said. 

The Price Action

The stock is trading around 2.5 percent lower — the fourth consecutive trading session in the negative territory.

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