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Stock Analyst Update

Lowering Oilfield Services Fair Values

Four companies look extremely cheap even after the fair value reduction, trading an average 70% below our fair value estimate.

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After incorporating reduced near-term global capital expenditure forecasts, we're reducing our fair values for our covered large diversified oilfield service companies. Our Schlumberger (SLB) fair value moves to $55 per share from $60, Halliburton (HAL) to $29 from $33, Baker Hughes (BKR) to $31 from $32, and Weatherford (WFTLF) to $63 from $70. All four companies still look extremely cheap even after the fair value reduction, trading an average 70% below our fair value estimate.

We're also placing the rest of our oilfield service coverage under review, pending full updates of those companies.

Among these companies, we're reducing our Halliburton fair value the most (12%) in percentage terms. Halliburton is more exposed to lower U.S. shale activity. Additionally, we've lowered our long-term profit forecast for Halliburton's pressure pumping business. Our Baker Hughes fair value moves down the least, as the company's nonoilfield services segments (accounting for about one half of operating income) will be much less affected by reduced oil and gas capital expenditures.

We are lowering our near-term forecasts for global oil and gas capital expenditures, chiefly to account for the effect of lower oil prices after the collapse of the OPEC+ production cut agreement. In particular, we expect lower near-term North America capital expenditures, as U.S. shale activity is highly sensitive to prices. We now expect about flat global capital expenditures for 2020 and 2021.

However, commensurate with our unchanged view on long-term oil prices, our long-term capital expenditure forecasts remain unchanged. We forecast a 16% increase in global oil and gas capital expenditures through 2023, driven by the ongoing international recovery plus a rebound in U.S. shale activity. 

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Preston Caldwell does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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