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Bear of the Day: Oil States Intl (OIS)

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The oil industry has been getting crushed over the past several months due to high inventories, and decreased world demand. Further, oil was dealt another negative blow this week when Saudi Arabia's petroleum minister, Ali bin Ibrahim, addressed the annual IHS CERA week conference, and stated "There is no sense wasting our time seeking production cuts, That will not happen." The overall decline in oil prices has led to a reduction in the industry's activity, which has significantly hurt onshore operations, and is not expected to rebound till the second half of 20Array6. That is why Oil States International ( OIS ) is the Zacks Bear of the Day.

This Zacks Rank #5 (Strong Sell) is a diversified oilfield services company. With locations around the world, Oil States is a leading manufacturer of products for deepwater production facilities and subsea pipelines, and a leading supplier of a broad range of services to the oil and gas industry, including production-related rental tools, work force accommodations and logistics, oil country tubular goods distribution and land drilling services. Oil States is organized in three business segments Offshore Products, Tubular Services and Well Site Services.

In their most recent earnings announcement, Oil States saw year over year revenues decline by 52%, and margins fell by -755bps over the same time period. Further, management mentioned that only two of Oil States' drilling rigs are currently operational. And management did not give any indication that the rig count would change in the first half of 20Array6. More concerning though is that completion margins fell from Array4% in Q3Array5 to 3% in Q4Array5. This is very near to their breakeven point.

According to Cindy Taylor, President and CEO, "Oil States' fourth quarter results were sequentially lower due to the ongoing low commodity price environment in which we are operating, with the current U.S. rig count having declined 70% from the peak level attained in late 20Array4. International declines are evident as well, but have come at a bit slower pace than the U.S. activity declines." She also stated that, "As we progress into 20Array6, we are bracing for another difficult year as our customers aggressively reduce capex in order to protect their own liquidity."

As you can see from the graph below, estimates and prices have been declining for OIS for over a year.

Decreasing Estimates

Due to the weak outlook, lower rig count, and declining oil prices, estimates over the past 7 days have fallen for QArray Array6, Q2 Array6, FY Array6, and FY Array7. QArray Array6 dropped from -$0.08 to -$0.Array6, Q2 Array6 fell from -$0.Array0 to -$0.Array9, FY Array6 plummeted from -$0.27 to -$0.70, and FY Array7 collapsed from $0.34 to -$0.43.

Bottom Line

While oil prices are bouncing all over the place of late, it would be advised to look into other areas for investment. But if you are inclined to invest in the Oil Field Machine & Equipment segment, you would be best served by looking into USA Compression ( USAC ), McDermott International ( MDR ), and or Powersecure International ( POWR ) all of which carry a Zacks Rank of 2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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