Preston Caldwell: Over the past month, share prices for oilfield-service companies have plummeted again, approaching lows set late last December. Share prices for many names are hovering around 15-plus-year lows.
Our views on the sector have remained largely unchanged despite this drop in sentiment, and so much of our coverage list looks undervalued. We still think the market is implying expectations for oil and gas capex that are much too low. We estimate that the market-implied expectation is flat international capex growth through 2023. This manifests in several international-levered oilfield-service firms being undervalued. In particular, we highlight Schlumberger, NOV, and TechnipFMC.
First, 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 (such as Schlumberger Production Management), which are driving cost savings in oil and gas development. We think Schlumberger's advantage here is missed by the market.
Next, NOV is also being underrated by the market. NOV’s core rig equipment business will benefit from a rebound in drillers’ maintenance capex. NOV’s non-rig businesses will continue to benefit from the rebound in coming years in the overall oil and gas activity.
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.