Energy

Jump in Oil Prices Could Be Huge for 3 Top Lagging Stocks

Lee Jackson

Published: April 8, 2019 7:30 am

Last Updated: January 30, 2020 10:23 pm

With West Texas Intermediate crude firmly over the $60 a barrel mark and up a stunning 36% in 2019 alone, this might be the catalyst the oil services sector needs to get a boost. We have noted recently that while most exploration and production companies have traded higher, none have made the huge move that the benchmark prices for oil have, and that is even more obvious when investors look at the top oilfield services companies.

In a new research report, Jefferies feels that the strong rise in oil prices during the first quarter could bode well for the oilfield services arena, and while the firm remains Neutral overall on the sector, the analysts do feel that the top stocks could trade well through the season, with fracking having the most potential for momentum.

Jefferies raised its price targets on three Buy-rated oilfield services leaders.

Baker Hughes

General Electric announced late last year that it will be divesting a large part of its interests in Baker Hughes, a GE Company (NYSE: BHGE), and this could provide some life to the shares. Baker Hughes is a provider of integrated oilfield products, services and digital solutions. Its products and services include upstream, midstream, downstream, industrial and digital.

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

Baker Hughes industrial solutions 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, and it enables field services with real-time insights.

Baker Hughes shareholders receive a 2.69% dividend. The Jefferies price target was raised to $32 from $31, and the Wall Street consensus target was last seen at $32.04. The shares closed Friday at $26.78.

Halliburton

This stock is down almost 42% since late May of 2018 and remains a top large-cap oil services pick across Wall Street. 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.

Jefferies has noted in the past that Halliburton’s business is dependent on commodity prices. As economic cycles proceed, commodity prices fluctuate. A low-price environment triggered by anemic economic growth or excessive production growth would limit demand for goods and services. With oil rising strongly this year, the worst for the company may be over.

Halliburton shareholders receive a 2.32% dividend. Jefferies raised its price target to $34 from $33, while the consensus target is $38.75. Shares closed Friday at $30.97.

Patterson-UTI Energy

This company remains a top oil services pick across Wall Street. Patterson-UTI Energy Inc. (NASDAQ: PTEN) is the second largest land driller in North America and a large pressure pumping provider. Its operations are particularly focused in the Marcellus and in Texas.

Patterson-UTI and its subsidiaries operate land-based drilling rigs in oil and natural gas producing regions of the continental United States and western Canada. Universal Pressure Pumping and Universal Well Services provide pressure pumping services primarily in Texas and the Appalachian region.

It remains the fifth largest pressure pumper, with a 1.5 million hydraulic horsepower frac fleet with exposure to ancillary rental equipment business through Great Plains Oilfield Rental. The 2018 acquisition of MS Energy (directional drilling) complements its contract drilling business and provides attractive growth opportunities for investors.

Investors receive just a 0.4% dividend. The $16 Jefferies price target was raised to $17. The consensus price objective is $17.70, and the shares were last seen trading at $15.05.

All these stocks have been battered and are offering investors some of the best entry points in the past five years. All are good additions to growth portfolios looking for value in the energy arena.