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Forum Energy Downgraded At JPMorgan; 39% Downside To 6-Month Price Target

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Forum Energy Downgraded At JPMorgan; 39% Downside To 6-Month Price Target

JPMorgan has downgraded Forum Energy Technologies Inc (NYSE: FET) to Underweight from Neutral, as it expects a retreat in the shares in the second half.

Not As Promising As It Once Was

Despite a solid strategy, strong balance sheet and admirable FCF generation, the brokerage downgraded the shares, saying that expectations "have run too hard too fast" with 39 percent downside to December '16 target price.

"[W]e think expectations have run too hard with other NAM beta plays, and a re-rating could lead to underperformance in 2H16 relative to equipment peers," analyst Sean Meakim wrote in a note.

On the industry front, the analyst said flagging oil prices could easily crush hopes that E&P inquiries in NAM translate to material incremental work in the second half (or even 2017).

Even if activity levels improve in the second half, Meakim remains concerned that production declines may soften, resulting in a less constructive oil price environment yield than what is necessary to instigate the next upcycle.

Related Link: Exxon And Chevron's New $37-Billion Project Is "Inflection Point" For Oil Market

"We think investor focus this earnings season is on confirming a 2Q bottom, but with expectations already implying 2H improvement, we believe disappointment could bring a broader pullback in the stocks," Meakim highlighted.

Meanwhile, Forum Energy shares have risen significantly since February on better expectations for normalized activity next cycle. That said, the company is still cautious on the outlook for second half.

Further, the analyst sees the possibility for a retreat as expectations reset in the second half if oil prices struggle to move higher and rig counts remain volatile.

"Admittedly some of the heat has come off the stock already (-14 percent off its June 7 high v. -8 percent OSX), but we see more room to run," Meakim added.

JPMorgan's other NAM onshore Underweighted-rated stocks that could underperform in a retrench in expectations include Helmerich & Payne, Inc. (NYSE: HP) and Patterson-UTI Energy, Inc.(NASDAQ: PTEN).

Top Picks

The analyst's top large-cap picks are Schlumberger Limited. (NYSE: SLB) and Halliburton Company (NYSE: HAL). Among small caps, Meakim likes Core Laboratories N.V. (NYSE: CLB), MRC Global Inc (NYSE: MRC) and TETRA Technologies, Inc. (NYSE: TTI).

Shares of Forum Energy closed Monday's regular trading session at $16.32. The analyst has a price target of $10 on the stock.

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Latest Ratings for CLB

DateFirmActionFromTo
Jan 2019MaintainsNeutralNeutral
Dec 2018DowngradesOutperformNeutral
Dec 2018MaintainsNeutralNeutral

View More Analyst Ratings for CLB
View the Latest Analyst Ratings

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