Service sector

Morgan Stanley provides insight into oil services sector – sees higher margins boost inventory

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Morgan Stanley presented first quarter results for the oil services sector on Monday, indicating that the risk-reward has emerged balanced and that the bank’s preference is for international stories rather than well-understood North American names. The bank raised price targets across the industry, with an average increase of 29%.

The sector has grown by 50% since the start of the year and is now back to pre-covid levels. Given recent performance, Morgan Stanley expects further share price appreciation to be driven by a combination of higher upfront spending and better margin performance. Noting that the latter is much more likely than the former.

The bank notes that year-to-date earnings revisions have favored US onshore companies, with Helmerich (HP), NexTier (NEX), Patterson (PTEN) and Tenaris (TS) all seeing higher double-digit revisions. high so far in 2022. Schlumberger (SLB) and NOV (NOV) have seen their estimates fall, partly on exposure to Russia. However, Morgan Stanley believes these dynamics are well understood.

On the earnings side, the bank favors Schlumberger (SLB), given the company’s exposure to a recovery in international spending. Tenaris (TS) is favored as capacity restarts in North America coupled with peak pricing data point to higher profits. While Liberty (LBRT) should show progress on new fracking fleets. Goldman recently picked companies with pricing power ahead of Q1 results and flagged Haliburton (HAL), Baker (BKR) and Schlumberger (SLB) as well positioned.