Morgan Stanley: C&J Energy Is Catching Up With The Competition

C&J Energy Services Inc CJ has underperformed peers by approximately 20 percent over the last six months, according to Morgan Stanley.

The Analyst

Morgan Stanley's Ole Slorer upgraded C&J Energy Services from Equal-weight to Overweight and raised the price target from $38 to $41 in a Tuesday note.

The Thesis

While Slorer previously had concerns surrounding C&J Energy Services' exposure to the "weak" well servicing market, the issue is already priced in by the market, the analyst said. C&J Energy's profitability in completions-related businesses has improved with a measured and disciplined approach to capacity deployment, said Slorer.

C&J's operational results are still lagging peers, but the company has improved and is no longer the bottom-tier performer any more, Slorer said.

At the trough of the cycle, C&J Energy Services was earning approximately 60 percent less EBITDA/HP than peers, the analyst said. It's now earning 20 percent more than average, Slorer said.

The analyst anticipates C&J Energy will continue reactivation of idle completions assets, leading to continued earnings growth. Slorer is also optimistic about the recent acquisition of O-Tex, a cementing service company. He sees the risk-reward for the company as favorable relative to its peers, with a two-to-one bull-bear skew.

The Price Action

The stock was down 2.6 percent at the time of publication at $29.63.

Related Links: 

Deutsche Bank's 3 Favorite Oil Service Picks: Patterson-UTI, Halliburton, C&J

Improving Oil Fundamentals Overshadowed By All The Attention On Bloated Inventories