Oil services companies such as Baker Hughes (NYSE: BKR), Halliburton (NYSE: HAL), and Schlumberger (NYSE: SLB) had mixed results, but one common Click them. The outlook for oilfield services spending remains strong and supports the industry’s multi-year upward cycle. Even Baker Hughes, which reported its weakest report in the second quarter, predicted higher spending would support not only revenue and earnings, but also healthy dividend payments.
“On the other hand, broader supply constraints could actually keep commodity prices high due to years of global underinvestment and the possible need to replace Russian barrels, This is true even with modest demand destruction. As such, we believe the outlook for oil prices remains volatile, but still supports strong activity levels as higher spending is needed to rearrange the global energy map and could offset demand in most recessionary scenarios Disruption,” Baker Hughes chairman and CEO Lorenzo Simonelli.
Dividend increase will drive oil services stocks higher
Baker Hughes has the best dividend yield of the three stocks, But there are some caveats to be aware of. The stock yields about 2.85%, and shares are trading near $24.75, but the payout ratio is 72% of the consensus fiscal year estimate and the growth outlook is much lower than that of Halliburton and Schlumberger. The difference is that Baker Hughes didn’t cut its dividend during the pandemic like other companies, which are very well positioned to increase their payouts over the next few years and even quarters. Not only is the business accelerating, but payment metrics are already favoring HAL up 22% and SLB up 35%. The difference between them is the increased distribution at pre-pandemic levels, the former equivalent to 35% and the latter closer to 200%.
“In North America, I expect Halliburton to maximize value in this strong, steadily growing and nearly sold-out market,” CEO Jeff Miller said in a second stated in the quarterly press release. “Price increases across all product service lines supported significant sequential growth in margins.”
Schlumberger CEO Olivier Le Peuch said earnings growth…growth was broad-based and driven by international , North America and increased activity across all sectors. The quarter was also characterized by a favorable mix of exploration and offshore activities and the growing impact of pricing improvements, resulting in the largest quarter-over-quarter increase since 2010.
Oil Services also has value
Oil Services relative to the broader market, stock valuations Values are a bit high, but these stocks are facing a period of expansion and the outlook for the broader market is bleak, so there’s a reason for that. Among them, Baker Hughes is the most highly valued stock of all trades at 25 times this year’s consensus estimate and 15 times the next t years. However, Schlumberger trades at 18 times this year and 11 times next year, while Halliburton trades at even lower multiples of 14 and 11, respectively.
Looking at the chart, these three companies are performing at least in line with the Van Eck Oil Services ETF (NYSEARCA:OIH), but Halliburton has significantly outperformed the group. Shares of Haliburton are up more than 300% since the pandemic bottomed and are outperforming the OIH ETF by more than 200%. While it seems likely that Halliburton will continue to lead the group, the other currently appears to be a better choice for new investments on a pair-trading basis.
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