Goldman Sachs Remains Cautious on Oil Services (RIG) (DO) (HERO) (BAS) (SLB) (HAL)

In a research note earlier, Goldman Sachs reiterated its Cautious stance on the oil services sector. 2015 and 2016 EPS projections and targets were cut to reflect heightened uncertainty.

"Despite the recent sharp sell-off we retain our Cautious coverage view on the sector," said analyst Waqar Syed. "While valuations are now more favorable, service price deflation, improving E&P productivity and recent currency trends are lowering E&P cost curves, increasing uncertainty about the depth and length of the commodity price correction. We highlight: (1) Service stocks should follow oil prices. (2) While stocks may have pre-sold, major negative catalysts lie ahead: rig count roll-over, service-price/margin deflation, and negative estimate revisions. (3) Proppant and land drilling rates to correct the most and pumping (PP) the least. (4) Following any weakness, PP should self-correct the quickest."

"Service stocks are in the “sell-off” stage of the downcycle and once commodity prices stabilize they should enter the “bottoming” phase, where we believe 10%-15% rallies are possible. We see these rallies as led by operationally and financially best-in-class stocks. Following market weakness, PP should self-correct the quickest, and our Buy ratings on SLB and RES reflect that view. Other
major PP companies are HAL (NR) and BHI (NR). Our defensive stock picks are Buy-rated OII (CL), ATW and SLB, while Sell-rated stocks RIG/DO/HERO/BAS/CRR have high spot exposure, balance sheet issues, dividend cut risks or a very weak market outlook," he added.

Stocks mentioned in the report include:

• Atwood Oceanics (NYSE: ATW)
• Diamond Offshore Drilling (NYSE: DO)
• Ensco plc (NYSE: ESV)
• Hercules Offshore (NASDAQ: HERO)
• Noble Corp (NYSE: NE)
• Rowan Cos. (NYSE: RDC)
• Transocean (NYSE: RIG)
• Helmerich Payne (NYSE: HP)
• Nabors Industries (NYSE: NBR)
• Patterson-UTI Energy (NASDAQ: PTEN)
• Baker Hughes (NYSE: BHI)
• Frank's International (NYSE: FI)
• Halliburton (NYSE: HAL)
• Schlumberger Ltd. (NYSE: SLB)
• Weatherford Intl., Ltd. (NYSE: WFT)
• Cameron International Corp. (NYSE: CAM)
• FMC Technologies (NYSE: FTI)
• National Oilwell Varco Inc. (NYSE: NOV)
• Oceaneering (NYSE: OII)
• Basic Energy Services (NYSE: BAS)
• C&J Energy Services (NYSE: CJES)
• Key Energy Services (NYSE: KEG)
• Pioneer Energy Services Corp. (NYSE: PES)
• RPC Inc (NYSE: RES)
• Carbo Ceramics, Inc. (NYSE: CRR)
• Fairmount Santrol (NYSE: FMSA)
• Emerge Energy Services LP (NYSE: EMES)
  

You May Also Be Interested In

• Goldman Sachs on Meta Platforms Inc. (META): 'We expect investors to have an initial negative reaction'
• Prudential Financial (PRU) PT Raised to $116 at Evercore ISI
• Compass Minerals International (CMP) PT Lowered to $15 at Deutsche Bank