The oil patch has been a very fickle sector of late. With the price of oil tanking to under $40 per barrel, profitability is going to be a tough road ahead for drillers, exploration outfits, service providers, oilfield equipment makers and other businesses which live around the growth of the oil patch.

While it was impressive to see that Schlumberger Ltd. (NYSE: SLB) was paying almost $15 billion in cash and stock to acquire Cameron International (NYSE: CAM), what is even more impressive is what this might mean for the companies and the players in the oil patch.

After reviewing several analyst calls from Merrill Lynch, Wells Fargo, Credit Suisse and elsewhere, it looks like the discount in post-announcement Schlumberger is just that much more of an opportunity for long-term investors. It is impossible to say that this will mark a bottom, and even more impossible to guess whether an oil stock recovery is any closer.

Bank of America Merrill Lynch said that this deal builds on top of the OneSubsea joint venture. With Cameron shareholders receiving 0.716 shares of Schlumberger and a sum of $14.44 in cash per share, this was better than a 50% premium.

What stands out here is “virtually no product overlap” and strong relationships with the OneSubsea joint venture. Merrill Lynch sees few regulatory issues with the deal being approved, and it sees a quick integration that will allow for a rapid capitalization of synergies and increased value for customers.

Merrill Lynch’s Douglas Becker and Christopher Voie have a $105 price objective for Schlumberger, some 52% higher than the $69.10 share price after a 5% drop on the news. The research report said:

Schlumberger expects the transaction to be accretive in the first year after closing, with year 1 and 2 synergies of $300 million and $600 million, respectively. Revenue synergies are a key aspect of the deal and the successful integration of the Smith acquisition provides confidence in execution. Schlumberger expects the deal to close in the first quarter of 2016. In this oil price environment, Schlumberger remains a top pick given its internal transformation and the acquisition.

Another boost is that the merger puts other deepwater/manufacturers into focus. Brent crude is down more than 60% from its 2014 peak and this merger highlights a likely trend of consolidation in oil services.

ALSO READ: 10 Stocks Ignoring The Sell-Off Carnage

The analysts here said that they would not rule out further M&A in the near term as industry pain intensifies, although the report does note that future deals would likely be smaller in scale.

The Merrill Lynch team said that the Cameron deal puts competitors like FMC Technologies, Inc. (NYSE: FTI), Aker Solutions, Forum Energy Technologies, Inc. (NYSE: FET) and Dril-Quip, Inc. (NYSE: DRQ) into focus. It also raises questions about what National Oilwell Varco (NYSE: NOV) and Weatherford International plc (NYSE: WFT) will do. A separate report from Robert W. Baird also put FMC Technologies, Inc. (NYSE: FTI) and Dril-Quip, Inc. (NYSE: DRQ) into the merger candidate ring as two potential takeover candidates.

Investors need to keep in mind that Halliburton Company (NYSE: HAL) and Baker Hughes Inc. (NYSE: BHI) still have their hands tied as far as them being involved in the near-term M&A story. They are also taking a while to secure approval.

24/7 Wall St. went back to a research report from early in August from Credit Suisse’s Focus List review. The firm had an $89 price target on Schlumberger at the time. The firm continued its Outperform rating and said:

In the current downturn, Schlumberger demonstrated its ability to optimize margins and cash flow generation even in a down market, making the metrics on the eventual recovery significantly more attractive. Last year at its investor meeting, Schlumberger laid out its plans for a transformational effort at what is the biggest, and historically best Oilfield Services company in the industry.

It was the business plan that the CEO presented in his quest for the top job and investors are now seeing the impact of its implementation. Few thought that a company of its reputation, efficiency, and technology needed such a transformation, but the pursuit changed from just maintaining its technology leadership to regaining its return and profitability leadership. This quarter demonstrated what a significant effort and result could be. The stock has gone from being somewhat fairly valued to being cheap again.

Wells Fargo had an Outperform rating on both Cameron and Schlumberger. Their report said a strong strategic fit is here that may drive more oil services and equipment transactions. They said:

We believe that the transaction represents an excellent strategic transaction for Schlumberger and our initial rough estimate is that the deal could be approximately 3% to 4% accretive in 2016 and 5% to 7% in 2017.

ALSO READ: Oppenheimer’s 7 Bull Market Leaders To Buy Into The Selling

Schlumberger shares were down 5.4% at $68.60, and Cameron was up 40% at $59.56. Here is how the reaction was on the day in these key stocks, with late-day prices right before Wednesday’s closing bell.

• FMC Technologies, Inc. was up 6% at $30.50, against a consensus analyst target of $40.00 and against a 52-week range of $27.94 to $62.00.
• Dril-Quip, Inc. was up 6.5% at $59.95, versus a $75.50 consensus target price and against a 52-week range of $53.37 to $102.00.
• Forum Energy Technologies, Inc. was up 2.4% at $12.72, with a consensus analyst target of $18.19 and a 52-week range of $8.34 to $34.39.
• Weatherford International was up 2.5% at $8.20. Its consensus analyst target was $14.43 and it has a 52-week range of $7.21 to $23.98.
• National Oilwell Varco was last seen up 3.8% at $38.76. It has a consensus analyst target of $45.10 and a 52-week range of $34.54 to $86.55.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.