Oilfield States International Is A Favorite Small-Cap Pick

OPEC has announced production cuts. This, along with President-elect Donald Trump's likely pro-hydrocarbon policies would support “sharply higher” U.S. drilling activity “at least in 2017–18,” Loop Capital Markets’ Stephen Gengaro said in a report.

Gengaro reiterated a Buy rating on Oil States International, Inc. OIS, while raising the price target from $34 to $44.

Rising U.S. Rig Count

So far in Q4, the U.S. rig count has averaged roughly 573 rigs, which is almost 20 percent higher than the average in the prior quarter and compares favorably with the estimate of about 10 percent. Gengaro added that the Q4 increase has been driven mostly by rising oil activity, with the oil-directed rig count averaging 458 rigs versus 390 rigs in Q3.

Early 2017 Upstream Budgets

E&P companies are unveiling their upstream capital spending budgets for 2017, and the initial figures indicate an increase of at least 35–40 percent in U.S. spending, versus the estimate of 25–30 percent. “We continue to believe that U.S. activity growth will far outpace improvement in international markets in 2017, which are generally still troughing,” the analyst wrote.

Saying that Oil States International is poised to benefit from these trends, Gengaro raised the EPS estimates for 2017 and 2018 from ($0.70) to ($0.65) and from $0.60 to 0.80, respectively.