Small-Cap Corner: Waiting On An Oil Services Rebound (CRR, HAL, SLB)
Tumbling oil prices have had a predictable, dour impact on oil services stocks. Large-cap, small-cap and anything in between in the oil services sector have been taken the woodshed in the past month as NYMEX oil futures have fallen to the tune of about 20%.
If there is any good news to be had it is that some oil services stocks and ETFs now trade at compelling valuations and some might just be saying it's time to take a look at them right now.
One such name might just be CARBO Ceramics (NYSE: CRR), a Texas-based supplier of resin-coated ceramic and resin-coated sand proppants used in fracking, the process by which shale oil and gas are separated from rock formations. Following a 50.2% tumble in the past year, CARBO Ceramics is now a small-cap name with a market value of about $1.7 billion.
Things weren't always this bad for the stock. Thanks to the shale boom, shares of CARBO Cermaics have surged 68.2% in the past five years, but the shale boom has cut both ways for those services providers with significant natural gas exposure. Amid a supply glut and depressed prices, producers are scaling back their shale gas production, leaving services providers such as CARBO vulnerable in the process.
At least that's what some investors think as evidenced by the stock's recent woes. On the other hand, it should be noted that CARBO does have ample exposure to oil and liquids shale plays, such as Eagle Ford in South Texas. Also in defense of CARBO, it should be noted the company has EPS growth of 65.14%, a return on assets of 19.42%, and a debt/equity ratio zero, according to ZetaKap.
Still, it should be noted that CARBO has already forecast a tough environment for the rest of 2012 and while the company has managed previous drilling cycles with noteworthy aplomb, there could be pricing pressures to deal with and cost issues as the company continues its migration toward more oil and liquids and less gas output.
Those looking for cues regarding CARBO shares should keep an eye on Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL). The world's two largest oilfield services providers are also CARBO's two largest customers, having combined for more than 20% of the company's 2011 sales. Shares of CARBO have outperformed those two services giants in the past month, but that's not saying much as the oil services group overall has been a destroyer of shareholder value as of late.
In July 2011, CARBO was trading around $180, which was probably a wee bit rich. At less than 11 times forward earnings, the stock may be cheap at current levels and active traders should note one key statistic about this stock: A short interest of almost 33%.
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