Oil States Upgraded As Morgan Stanley Challenges Consensus 'Underestimating OIS's Shale Related Earnings Power'

On Track To Reverse Underperformance

Analyst Ole Slorer believes the company will see a meaningful recovery in offshore production equipment orders over the coming quarters, coinciding with a recovery in its onshore-related earnings. Accordingly, the analyst sees the company reversing its underperformance relative to its North American pure play peers.

Backlogs Reaching Inflecting Point As Offshore Orders Tick Up

Morgan Stanley expects offshore project sanctioning to surprise to the upside despite a sluggish drilling environment, benefiting Oil States' deepwater product business. The company, which supplies connectors and pipeline-related products, could see a backlog inflection point due to the uptick in offshore ordering, the firm said.

Completion Service Business To Be Standout Performer

Additionally, Morgan Stanley believes the company's completion services business could be a top performer as North American shale activity starts to recover. The recovery theory is premised on a rise in U.S. shale activity out of the May trough and the recent strength in oil prices, supporting activity gains in the U.S. land. The firm termed the company's completion service business having higher margin as a more defensive way to play U.S. onshore versus the more commoditized pressure pumping industry.

Morgan Stanley Well Above Consensus On Oil States

Going by the ability of the completion service business' ability to generate $150 million in EBITDA versus the consensus estimate for the total company EBITDA of $150 million and the firm's positive view on offshore products, Morgan Stanley said it remains well above the consensus estimates.

Along with the ratings upgrade, Morgan Stanley also raised its price target for the shares of the company to $53 from $40.

In pre-market trading, shares of Oil States were up 0.81 percent at $31.20.