Schlumberger well service trucks. A Piper Sandler analyst thinks Schlumberger stock could rise 29%.
Dreamstime
Companies producing and selling oil have been the most prominent beneficiaries of the rise in prices. The companies that sell equipment and services to the producers have also fared well, and one analyst expects them to have a long and very profitable rise—one that could last into the middle of the decade.
Piper Sandler analyst Ian Macpherson upgraded Schlumberger (ticker: SLB), the world’s largest oil services firm, to Overweight on Monday as part of a larger re-rating of the industry. He says that Schlumberger stock could rise 29%, to $55. On Monday, the shares were down 1.1%, to $42.07.
The oil services industry underwent an enormous downsizing over the past three years, as producers began to cut back on expenses because of shareholder pressure. The pandemic exacerbated the trend. Schlumberger announced it would cut about 21,000 jobs, or about one-fifth of its workforce, early in the pandemic. That made the companies leaner, but it also left them unprepared when oil prices shot higher and producers again needed their services. The global Baker Hughes rig count has fallen from a peak of 3,900 in 2012 to 1,661 in March.
The shortages of rigs and other supplies today are “emblematic of the broader industry scar tissue and atrophy that have resulted from being brutally over-downsized for several years ahead of the present energy supply crunch,” Macpherson wrote.
Piper Sandler expects oil prices to stay high for several years. The bank’s price target for West Texas Intermediate (WTI) crude oil, the U.S. benchmark, is at $130 a barrel for the next year and $100 through 2025. (WTI now trades around $95.) With increasing demand for rigs and too few of them available, oil services companies should have strong pricing power.
While Schlumberger is the largest player, Macpherson sees even more upside for other oil services and equipment firms.
His top picks are Tenaris (TS), TechnipFMC (FTI), and Weatherford International (WFRD). Those three can rise by an average of 75%, he projects. He also likes ChampionX (CHX), and upgraded the stock to Overweight with a $30 price target. Its shares were down 0.9%, to $23.61, on Monday.
Write to Avi Salzman at [email protected]
