One thing the huge drop in oil prices has likely done is speed up the mergers and acquisitions ideas for some of the top companies in the industry looking to take advantage of smaller competitors. With some companies feeling the pinch from too much leverage and debt, to huge excess capacity, the pickings are ripe for the big integrated companies and exploration and production giants to strike.
In a new research report from RBC Capital Markets, the analysts have prepared a massive list of companies that could be takeout candidates across a wide swath of S&P 500 sectors. Today we screened the energy sector for stocks they see as possibly a good fit for an acquirer. We looked for the larger cap, more well-known stocks. They are the kind that if not acquired, still make sense from a standalone basis.
C&J Energy Services Inc. (NYSE: CJES) is an independent provider of premium hydraulic fracturing, coiled tubing, wireline, pumpdown and other complementary oilfield services with a focus on complex, technically demanding well completions. In addition to C&J’s suite of completion, stimulation and production enhancement services, the company manufactures, repairs and refurbishes equipment and provides parts and supplies for third-party companies in the energy services industry, Earlier this month the company announced the purchase of Nabors Industries’ production services unit.
The Thomson/First Call consensus price target for the stock is $16.67. Shares closed Friday at $13.47. That is down over 50% from highs printed last summer.
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CARBO Ceramics Inc. (NYSE: CRR) is another top oil field services stock, and it was a company that hit our insider buying screens this past weekend. CARBO Ceramics is a maker of material used to boost the output of oil and natural gas wells. The company posted revenue of $167.8 million for the fourth quarter, which like the earnings-per-share number also beat Wall Street forecasts. Hitting estimates in a rough environment certainly ups the value of a company.
CARBO Ceramics investors are paid a very solid 3.57% dividend. The consensus price target for the stock is $31.30. Shares closed above that on Friday at $36.95, but are down from over $150 last summer.
Dril-Quip Inc. (NYSE: DRQ) is another top oil field services name that makes the potential takeout screen at RBC. The company is a leading manufacturer of highly engineered offshore drilling and production equipment, which is well suited for use in deepwater, harsh environment and severe service applications. The company is expected to report earnings either this week or early next week.
The consensus price objective for the stock is $89.46. Shares closed Friday at $72.24, which is down from a high of $115 less than a year ago.
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Hornbeck Offshore Services Inc. (NYSE: HOS) posted poor earnings results and was hit hard earlier this month. The company is a leading provider of technologically advanced, new generation offshore service vessels primarily in the Gulf of Mexico and Latin America. It is suffering a double-whammy of sorts, as oil has declined and offshore drilling was slowing even before the plunge in pricing.
The consensus price target is posted at $26.20. Shares closed Friday at $19.97, down over 5%. The stock is down a whopping 57% since last summer.
Rowan Companies PLC (NYSE: RDC) is an offshore driller that might draw some interest, if the RBC team is correct. The company holds a leading position in high-specification jackup rigs, and its fleet of 30 jackup rigs operates worldwide, including the Middle East, the North Sea, the Mediterranean, Trinidad, Southeast Asia and the Gulf of Mexico.
Rowan investors are paid a 1.62% dividend. The consensus target is $24.96, and the stock closed Friday at $24.68. That is down almost 35% from last summer.
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There is absolutely no guarantee that any of these companies gets bought anytime soon. However, with interest rates still at almost record lows, and the energy sector still very dicey, opportunistic bigger companies may be on the prowl for quality bolt-on additions that could add revenue, and/or cut costs when things perk back up.
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