National Bank National Bank Financial analyst Dan Payne thinks the macro backdrop for oilfield services providers “firmed up” in the third quarter with “the broader economy continuing to positively navigate the persistent challenges and stress of interest rates and recessionary risks, and commodity prices inclined.”
However, ahead of the start of the third-quarter earnings season, he warned that momentum did not “buoy the OFS activity backdrop, where general uncertainty and structural orientation towards sustainable budgets continued to dominate the cadence of the spending cycle, with the U.S. rig count off 10 per cent through the period (down 9-per-cent oil and down 15-per-cent gas).”
In a research report released Friday, Mr. Payne updated his activity forecasts and associated estimates for his coverage universe to account for the firm’s increases to its 2023 and 2024 oil price projections.
“The punchline for the OFS group remains; what is the clearing multiple for a high-quality, resilient and sustainable earning profile?,” he said. “The group has positively navigated the deterioration in the rig count, with share prices generally looking through recent activity weakness (and contracting earnings estimates), in support of general multiple expansion (a positive sign for the willingness of the market to recognize that sustainable value profile) and material headroom continues to exist towards historical multiples (trading at a 40-per-cent discount to historical). With that, we will await further colour on the resilience of earnings through third-quarter reporting, but for the time (and conceivably until the upstream proves that inflection to activity), we have made associated revisions to our forecasts (largely relating to the timing and cadence of spending programs), estimates, targets and ratings (rolling and risking our target price multiples to 2024 from 2023) and are ordinally ranking our coverage through the lens of relative momentum of a) earnings versus b) valuation, which has us oriented as 1) PSI (bulletproof), 2) TCW (best market exposure), 3) PD (generally insulated) and 4) EFX (absolute holding pattern), while we continue to believe that all high-quality participants should be benefactors of patience through what has always been projected to be a longer-duration cycle.”
He maintained his targets for these stocks: Precision Drilling Corp. ( “outperform”) at $135, Pason Systems Inc. (“outperform”) at $20 and Trican Well Service Ltd. ( “outperform”) at $6.75. The averages are $133.53, $16.64 and $5.94, respectively.