Oil Price – Analysts at Barclays have downgraded the energy services sector on Wednesday, giving it a Neutral rating from Positive amid a bearish oil macro environment. The analysts have highlighted the absence of investor capital influx into the sector despite stable service and equipment markets and disciplined pricing, and see a potential risk for another cut to 2025 earnings.
After posting three years of double-digit growth, the energy services sector is now facing a mid-cycle plateau in spending.
“It’s very difficult to see any of the “beta-driven” names outperform until the OPEC cut overhang is removed and the macro data points start turning positive with another cut to ’25 earnings as a risk,” strategists led by J. David Anderson said in a note.“With this backdrop, we don’t see a path for Energy Services outperforming the rest of the Energy sector until the environment shifts,” they added.
Barclays has upgraded deepwater drilling company Oceaneering International (NYSE:OII) to Equal Weight from Underweight, saying the company owns a robust robotics business and high-margin, low-capital expenditure profile. Barclays has raised Oceaneering’s price target to $26 from $22.
The analysts have, however, downgraded Valaris Ltd (NYSE:VAL) to Equal Weight from Overweight, pointing to challenges including the company’s floaters without contracts as well as a decision to warm-stack a drillship. The investment bank has cut its Valaris price target to $49 from $59
Meanwhile, the analysts have recommended buying companies with minimal exposure to upstream spending, including Schlumberger (NYSE:SLB), TechnipFMC (NYSE:FTI), Baker Hughes (NASDAQ:BKR), Tenaris (NYSE:TS), and Transocean (NYSE:RIG).
Goldman Sachs is equally bearish in the sector due to the small potential for activity change. However, Goldman analyst Ati Modak has upgraded Patterson-UTI Energy (NASDAQ:PTEN) to Buy from Neutral with a $10 price target, and also rates SLB and HAL a Buy.The bank maintains Sell ratings on NOV Inc. (NYSE:NOV) and Helmerich & Payne (NYSE:HP), which are projected to offer a weaker combination of returns and revisions compared to peers.
By Alex Kimani for Oilprice.com
