One would think that oilfield services stocks would be following in lock step with the price of oil as capital expenditure budgets are firm, and the price of oil has been above the $60 mark since February for West Texas Intermediate. That has not been the case, and if any subsector may be offering value now for investors with a long-term view, it’s the oilfield services arena.

In a series of new reports, SunTrust continues to keep Buy ratings on three of the top companies in the industry, and with good reasons. Despite some near-term weakness, as some of the forward commentary was cautionary, earnings were decent, and the outlook for a 2019 recovery is improving.

The analysts upgraded one company to Buy and keep two other leaders with Buy ratings.

Baker Hughes

General Electric announced recently it will be divesting its interests in this company, which could provide a life to the shares. Baker Hughes, a GE Company (NYSE: BHGE) is a provider of integrated oilfield products, services and digital solutions. The company’s products and services include upstream, midstream, downstream, industrial and digital.

Baker Hughes upstream business includes evaluation, drilling, completions and production. Midstream enables the power and compression efficiency for liquefied natural gas pipeline and storage. Downstream builds reliability and safety into process operations that include refining and petrochemical and fertilizer solutions.

The company’s industrial solutions unit offers power generation to advanced control systems and sensing technology that power industrial facilities. Digital transformation integrates data on an open platform with security and scale. The digital transformation enables field services with real-time insights.

SunTrust raised the stock to a Buy and noted this:

Second quarter operating income was better than we expected, and orders in Oilfield Services and Equipment were stronger than expected, improving our optimism regarding the company’s earnings power this cycle. The $0.05 headline miss on earnings was due to higher interest expense and taxes, and a hopefully non-recurring asset charge that reduced equity in income of affiliates. Several solid quarters have reduced our concerns about the potential impact of mid-level management departures from the Baker side of the business.

Shareholders are paid a 2.18% dividend. The SunTrust price target is $39, and the Wall Street consensus target is $37.33. The stock closed Tuesday at $32.99.

Halliburton

This company is down almost 25% since late May and remains a top large-cap oil services pick at SunTrust. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. It serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.

Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. For investors looking for an oilfield services company to add, this is arguably the best, and analysts feel it will be a huge benefactor as the frac market has tightened significantly and prices are 20% to 30% off the lows.

The company posted solid numbers for the second quarter but guidance threw the street a curveball. The SunTrust research report said:

Halliburton expects third quarter EPS to be in-line with second quarters $0.58, $0.10 below consensus expectations, on lower utilization in the Marcellus, and an increase in repair & maintenance expense to prepare for a 2019 recovery in demand. This was a shock to a market worried about possible Permian weakness, implying early 2019 estimates may need to come down another notch for lower Permian utilization. The company is still generating the best returns of the large cap OFS companies, and we think 2020 will be above 2019.

Halliburton shareholders receive a 1.78% dividend. The SunTrust price target was lowered to $58 from $69, while the consensus target is $59.83. The shares closed Tuesday at $40.35.

Schlumberger

This top oil services company is expected to benefit from increased exploration and production spending, and it is also a member of the Merrill Lynch US 1 list. Schlumberger Ltd. (NYSE: SLB) is the world’s largest provider of services and equipment used in drilling, evaluation, completion, production and maintenance of oil and natural gas wells. Revenues in 2017 totaled $30.4 billion, and EBITDA was $6.9 billion.

The company operates in the oilfield service markets through three groups: Reservoir Characterization, Drilling and Production. Reservoir Characterization Group consists of the principal technologies involved in finding and defining hydrocarbon resources. These include WesternGeco, Wireline, Testing Services and Schlumberger Information Solutions.

The analysts noted this:

Management has enough confidence and visibility to improving demand to predict double digit international top-line growth in 2019, which has us bullish about the long-term prospects for the shares. Schlumberger mobilized an unprecedented 29 land rigs in second quarter of 2018, and will have deployed over 90 rigs by year end on contract awards. Rising activity, backlog additions for integrated projects, and surprising commentary that international pricing has bottomed, and should improve in 2019, should be supportive of improving earnings over the next few years.

Shareholders receive a 3.05% dividend. The $80 SunTrust price target compares with the $78.21 consensus target. The stock ended trading on Tuesday at $65.52.

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Three hammered sector leaders that may not be poised to jump at once but could be offering investors looking for oilfield services exposure the best entry point in years. All are leaders and will surely be around when the recovery for the industry comes.

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