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.
|Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.|
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.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Preston Caldwell does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.