Investors' Soapbox: Three Picks in Oilfield Services for a Painful 2017 -- Barrons.com
DOW JONES & COMPANY, INC. 11:59 AM ET 2/6/2017
Symbol Last Price Change
RIG 13.64 -0.33 (-2.36%)
ESV 10.769up -0.611 (-5.37%)
QUOTES AS OF 12:16:37 PM ET 02/06/2017
(The opinions contained in Investors' Soapbox in no way represent those of Barrons.com or Dow Jones & Company, Inc. The opinions expressed are those of the newsletter's writer(s) or analysts at research firms. Some of the research firms have provided, or hope to provide, investment-banking or other services to the companies being analyzed.)
Credit Suisse
The Offshore Drillers have been the worst-performing sector in Oilfield Services for the last three years. Rightfully so, as the industry has stared into the abyss for much of the last two years.
While we do not expect industry fundamentals to improve until 2018 at the earliest (utilization, pricing will head lower in 2017), we do expect tendering activity to pick up in 2017 with the working floater count bottoming in early 2018.
It has been a long cold winter for the Offshore Drillers with stocks down 75%-plus since the cycle started to roll in 2013. We are in the midst of the deepest driller downturn since the 1980s -- last time the market was this bad. Interestingly, stocks rose sharply off the bottom during the late 1980s recovery. We see potential for a similar scenario with stocks to double or more off the bottom depending on the strength of the up-cycle.
The drillers have done a good job lowering operating expenses, cutting capital expenditure, and increasing liquidity over the last two years. Bottom-line solvency concerns are no longer a near-term risk for most. In the near term the working floater count stands at about 115 and with about 50 floaters rolling off contract through 2017. The working floater count will move lower through 2017 but looks set to bottom in early 2018 as brownfield work picks up.
As the down-cycle enters its fourth year, we see potential for the six- to nine-month discount window stocks typically have to widen ahead of an inflection. The near-term outlook is challenging and we expect another approximately 40 floaters to be stacked. We think the drillers will lead the offshore recovery.
We upgrade Transocean(RIG) and Ensco(ESV) to Outperform (from Neutral) and maintain an Outperform rating on Noble (NE). Transocean(RIG) remains the beta play owing to a leveraged balance sheet and global footprint (think more bites at the apple). We also update our target prices on Transocean(RIG) [to $18 from $8], Ensco(ESV) [to $15 from $9], Noble [to $10 from $7], Rowan (RDC) [to $21 from $13] and Atwood Oceanics (ATW) [to $8 from $6].
-- Gregory Lewis -- Neesha Khanna -- Joseph Nelson
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(END) Dow Jones Newswires
02-06-171159ET
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