We are maintaining a Neutral recommendation on
) - an oilfield service company that provides reservoir management
and production enhancement services to the oil and gas industry on
a global basis.
The company posted mixed second-quarter 2012 results with earnings
per share exceeding the Zacks Consensus Estimate and revenue
falling short of the same. The quarterly performance was influenced
by superior performances across all the three business units,
partially offset by steeper operating expenses.
For the coming quarters, Core Labs' deep portfolio of proprietary
products and services along with strong presence in the emerging
shale plays and a global footprint - including markets in the
Middle East, Asia Pacific, and East and West Africa - are expected
to facilitate steady growth rates going forward.
Over the last few years, Core Labs has laid a lot of emphasis on
international crude oil ventures, especially in deepwater regions
and unconventional resource plays, which generate high returns. The
company expects to see greater pre-salt activities in the Kwanza
basin offshore Angola as well as in Iraq and Asia Pacific in the
Coupled with the development of advanced and superior technologies,
Core Labs intends to seize attractive opportunities overseas and
boost its growth momentum over the next few quarters.
Armed with strong liquidity position, Core Labs gets the
opportunity to buy back shares and pay dividends (during first half
of 2012, dividend and share repurchases equaled $76 million). It
also allows Core Labs the scope for acquiring companies that fit
their strategic profile, as well as taking on extra capacity in
growing regions like the Middle East.
Notwithstanding the positive aspects, we remain concerned about the
volatile macro environment, which will likely impact the company's
profitability in the coming quarters.
With operations spanning over many countries and a large portion of
total revenue coming from international markets, Core Labs'
operations remain vulnerable to risks such as embargoes and/or
expropriation of assets, exchange rate risks, terrorism and
political/civil sentiment in critical countries like Iran, Iraq,
Nigeria and Venezuela.
Moreover, the use, storage and disposal of chemicals inherent in
Core Labs' analytical technologies may leave them susceptible to
strict laws and regulations in compliance with environmental
safety. Restrictions and laws enforced by the government may
require the purchase of costly equipment, or it could involve steep
fines and suspension of operations for non compliance.
Considering, these factors we expect the company to perform in-line
with the broader market. Core Labs - which collaborated with
Petroleo Brasileiro S.A.
) for a number of reservoir analysis ventures in onshore and
offshore Brazil - currently retains a Zacks #3 Rank, translating
into a short-term Hold rating.
CORE LABS NV (CLB): Free Stock Analysis Report
PETROBRAS-ADR C (PBR): Free Stock Analysis
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