Market Overview

BofA Weighs In On Oil Services, Upgrades Schlumberger And Baker Hughes

BofA Weighs In On Oil Services, Upgrades Schlumberger And Baker Hughes
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Crude oil prices have been headed higher in recent months, and the global oil services industry appears to finally be stabilizing following its 2014 collapse. Oil services share prices have been headed in the right direction for patient investors, but one analyst says oil investors will soon turn their attention from the U.S. market to the international market.

The Analyst

Bank of America analyst Timna Tanners made the following adjustments to her ratings of the three largest global oil services stocks:

  • Tanners upgraded Schlumberger Limited. (NYSE: SLB) from Neutral to Buy and lowered her price target from $79 to $75.
  • Tanners downgraded Halliburton Company (NYSE: HAL) from Buy to Neutral and lowered her price target from $61 to $50.
  • Tanners upgraded Baker Hughes, a GE company Class A (NYSE: BHGE) from Underperform to Neutral and lowered her price target from $35 to $33.

The Thesis

According to Tanners, the U.S. pressure pumping business will finally report normalized earnings in 2018. Unfortunately or Halliburton investors, the stock’s recent outperformance may have already fully priced in the normalized industry activity.

“While U.S. completion conditions remain strong, outperforming within oilfield services in 2018E, we believe this is largely recognized by the market, with most frac-exposed names already discounting a plateau or correction,” Tanners said in a Monday note.

Tanners said investors will likely soon shift their focus from the domestic U.S. oil industry to the international and, eventually, offshore business, where Schlumberger is the star of the show.

“The heavyweight in int’l oilfield services, SLB should benefit from long-awaited activity improvement even if better pricing takes time,” Tanners wrote.

Tanners said Baker Hughes no longer looks overvalued following its recent sell-off.

“BHGE shares have retreated 15% over the past 6 months (vs the broader OSX index up 17%) and provide better value now in our view, with expectations tempered for LNG-related growth and prepared for a delayed equipment recovery,” she wrote.

Price Action

All three stocks traded lower on Monday. In the past six months, Baker Hughes stock is down 17.6 percent, Schlumberger stock is up 4 percent and Halliburton stock is up 22.7 percent.

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Disclosure: The author is long SLB, HAL and BHGE.

Latest Ratings for SLB

Jan 2019CitigroupMaintainsBuyBuy
Dec 2018Credit SuisseDowngradesOutperformNeutral
Dec 2018JP MorganDowngradesOverweightNeutral

View More Analyst Ratings for SLB
View the Latest Analyst Ratings

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