PSI is the only stock within their coverage where they raised the target price. GLTA
Equities in the Canadian oilfield services industry remain attractive heading into 2024, according to Stifel analyst Cole Pereira, who sees a “stock picker’s market.”
“Many of the companies in our coverage universe are generating significant FCF and delivering it to shareholders while debt evaporates from the space and ROIC remains at 10-15 year highs,” he said. “However, despite these points, the sector continues to trade near historical lows on the basis of EV/EBITDAS valuations at 3.3 times 2025 on average.”
In a report released Wednesday, Mr. Pereira warned increased commodity price volatiliy has lowered visibility on forward activity and earnings growth. That is likely to cut the potential for positive financial revisions on the Street, which he said is “typically the primary factor influencing share price performance in the space.” It also led him to stress “importance of stock picking has increased significantly.”
“We continue to like what we view as relatively lower risk Oilfield Services names, namely, companies that (1) have larger market caps and higher trading liquidity; (2) are generating an attractive ROIC relative to their peers; (3) are generating meaningful FCF and returning it to shareholders; and (4) trade at inexpensive valuations,” the analyst said. “In particular, we have a positive view of companies that have been reducing their share counts through NCIBs - as this helps enhance per-share growth rates in a lower activity growth environment. In our view the stocks that best reflect the points above in order are TCW (Buy, $6.00/share target price), CEU (Buy, $5.00/sh TP), SES (Buy, $11.25/sh TP), and PD (Buy, $120.00/sh TP).”
Cutting his EBITDA forecast for 2023 by 1 per cent and 2024 by 5 per cent after updating his sector activity projections, Mr. Pereira cut his target prices for nine of the 14 companies in his coverage universe.
Conversely, he raised his target for Pason Systems Inc. to $17, matching the average, from $16 with a “hold” rating.