Preston Caldwell: In the last several months, share prices for oil field service companies have plummeted. Share prices for many breached new decadelong lows, some surpassing even lows set during the great financial crisis. Although there has been some bounce back since the nadir in early January, share prices still remain very depressed.
Our views on the sector have been, for the most part, unchanged despite this drop in sentiment, and so much of our coverage list looks undervalued. In this piece we highlight three of the most deeply discounted yet higher quality names: Schlumberger, Weatherford, and TechnipFMC. They're all trading at least a 25% discount to fair value.
With the sector share price drop, we think the market is now implying expectations for oil and gas capex that are much too low. We estimate that the market-implied expectation for international capex growth is just 5% through 2022. This is very low, barely enough to even cover inflation. By contrast, we forecast 20% international capex growth through 2022.
Schlumberger has peer-leading international exposure, and therefore is highly affected by the market's pessimistic view on international capex. Schlumberger is poised to gain market share and boost its profitability as a result of its integrated businesses which are driving cost savings in oil and gas development.
Weatherford is another way to play the capex story, with a deeply discounted share price. Investors shouldn't be scared by the firm's history; new management has righted the ship, in our view.
Finally, TechnipFMC also looks attractively priced. We think the market concerns with industry headwinds are overblown, and investors aren't fully appreciating TechnipFMC's advantage in subsea integration.