The 5 Biggest Oilfield Services Stocks Ranked From Worst To First

Oilfield services companies were significantly affected by the downturn in the oil market that began in 2014. As the price of oil plunged, many oil producers drastically reduced their production and postponed their growth projects. Consequently, the oilfield services companies experienced a major hit.

However, thanks to the efforts of OPEC and Russia, the supply glut has eventually been eliminated from the oil market. Thus, the price of oil has enjoyed a strong rally in the last 12 months, and is now trading at a 3.5-year high. As a result, U.S. oil production has reached record levels this year and is expected to continue to climb to new all-time highs next year. In addition, the number of active rigs has more than doubled since it bottomed in 2016. The large oilfield services companies are now in the early phases of what could be a multi-year recovery.

In this article, we will compare the expected 5-year returns of the five biggest oilfield services companies: Schlumberger (SLB), Halliburton (HAL), National Oilwell Varco (NOV), Baker Hughes-GE (BHGE) and TechnipFMC (FTI).

We will calculate their expected returns by summing their expected earnings-per-share growth, their dividend and their expected annualized expansion or contraction of their price-to-earnings ratio. This data is from the proprietary Sure Analysis Research Database.

Oilfield Service Dividend Stock #5: National Oilwell Varco

National Oilwell Varco generates 44% of its revenue in North America, while 65% of its business is in inland production. The company operates in three segments: Wellbore technologies, completion & production solutions, and rig technologies.

Before the downturn that began in 2014, the rig technologies segment was the flagship, as it used to generate approximately half of total revenue. However, as the number of new-built rigs collapsed during the downturn, this segment has been the most severely affected, and is now the smallest segment.

NOV Revenue

 

Source: Investor Presentation

Despite the downturn, National Oilwell Varco continued to post strong free cash flows in recent years, thanks to its drastic spending cuts. For instance, in the last three years, it has enjoyed free cash flow between $640 million and $879 million ($1.68 and $2.31 per share, respectively). As a result, the company is in the top quartile of free cash flow margin in its sector. As it also has a strong balance sheet. With a current ratio of 3.4, it can easily wait for the rebound of its business without any problem.

Thanks to the recent rally in oil prices, National Oilwell Varco’s fundamentals have improved in the last one year. However, it is a late-cycle company, as the oil price has to remain strong for a long period for its customers to regain their confidence and boost their capital expenses. For that reason, National Oilwell Varco is still far from making a meaningful profit, but it is likely to return to a solid profit in 2020. While it is expected to make a marginal profit of $0.20 per share this year, it is likely to see its earnings per share rebound to approximately $4.00 by 2023.

Thanks to the profits that the company will accumulate in the next five years, its book value per share is likely to grow from $37.00 to $47.00 over this period, for a 4.9% average annual growth rate. In addition, the stock is now trading at a price-to-book value ratio of 1.23, which is very close to its 10-year average of 1.26. If the stock reverts to its average valuation level within the next five years, it will enjoy a 0.5% annualized gain thanks to the expansion of its valuation level. Overall, given its 0.4% dividend, the stock is likely to offer a 5.8% average annual return over the next five years.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities. However, the publishers of Sure Dividend ...

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