RE:ATBPart 2. GLTA
In a separate report focused on North American energy services large caps, land drillers and completions, Mr. Monachello and Mr. Syed emphasized U.S. drilling and completion (D&C) activity has underperformed and expect guidance will be weak.
“On the other hand, the Canadian D&C activity is outperforming, while International is largely in-line,” they adde. “We lower our 2024/2025 U.S. land rig count forecast by 3 per cent/8 per cent, while raising our Canadian rig count forecast by 4 per cent/4 per cent. For the earnings season, we recommend companies with high Canada/International exposure, strong FCF and company-specific catalysts.
“Our key long recommendations for the earnings season are: (1) SLB: It has unduly underperformed, while its Mideast/Asia business is performing very strongly, and it remains on track to meet its 2021-2025e EBITDA growth targets, and will likely outperform them when the recently announced ChampionX merger is included. SLB should return $7-billion in cash to shareholders in 2024/2025. (2) NOV: We expect stock catalysts like FCF ($204-million) and ‘Excess’ FCF inflection ($384-milllion), strong quarter-over-quarter inbound order rebound, and solid cash return to shareholders. (3) PD-T: Expect 12-per-cent EBITDAS beat in Q2/24, as Canadian rig activity has been running 15 per cent higher year-over-year in Q2/24 and the super-triple rig market remains strong. PD-T should generate $117-million in FCF and should pay down debt. However, the U.S outlook remains weak for PD-T. (4) ESI-T: Expect solid performance out of the Canadian business, and in the. U.S., it is seeing market share gains owing to its California exposure, as California is the only market currently showing activity increases, but the key differentiator is forecast of solid FCF of $77-million in Q2/24 (19 per cent of market capitalization) and likelihood of strong debt pay down. "
Mr. Syed trimmed his target for Precision Drilling Corp. to $120 from $126, keeping an “outperform” rating. The average is currently $127.02.
“For PD-T our 2024 estimate is slightly cut (less than 1 per cent), as the benefit of the strength of the Canadian market is slightly outweighed by its exposure to the weak U.S, land rig market,” he said.