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By Robert Bellinski, CFA | 06-02-2014 11:00 AM

Any Sector Will Envy This Stock's Returns on Capital

This firm has one of the widest moats of all wide-moat stocks, and a recent sell-off has created a buying opportunity.

Robert Bellinski: Core Laboratories is an oilfield-service company that at its heart focuses on helping oil producers understand the rock and the fluids that are coming out of their oil reservoirs. Core has one of the widest moats of all wide-moat companies that we follow. It has industry-leading margins, and its returns on invested capital are the envy of any industry. They have averaged about 50% over the past three years.

Core's moat source comes from two areas, we think. First are its intangible assets in the form of geologic databases and a strong scientist workforce. Core also benefits from a network effect. It performs multiclient reservoir studies in many of the U.S. unconventional plays.

Shares have dropped about 25% since mid-April after management issued two successive revenue forecast cuts in the span of three weeks. While we're less than pleased with the way management chose to communicate this, we think that the factors driving the cuts are more driven by timing versus an actual impairment of the business itself.

Bottom line, we still expect demand for Core's services to expand as producers seek to recover additional oil from aging reservoirs. Two, we still have confidence in management. They have a strong track record of shareholder wealth creation and returning capital to shareholders. And three, we think that this sell-off is an opportunity. Shares right now are trading at $160 versus a $196 per share fair value estimate.

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