Excluding Venezuela write-down ($385mm pre-tax) and non-cash tax reform discrete charges ($882mm), HAL reported 4Q17 EPS of $0.53, beating Cons/WR of $0.46/$0.49. EBITDA of $1,157mm beat Cons by 6%, led by much better-than-expected topline growth of 9% q/q. Operating margins increased 120bps q/q to 12.9%, a little shy of our 13.1% estimate. NAM and international revenues increased 7% q/q and 11% q/q, respectively, slightly below SLB’s +8% q/q in NAM but significantly outperforming SLB’s +2% q/q internationally. D&E really drove the beat with EBIT up 62% q/q, which likely benefited from strong year-end completion tool and software sales. C&P seq incrementals of 10% were a bit disappointing. See variance for more details.
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SLB believes the tide is turning for them. We agree. If Brent prices hold $60/bbl, we see the most upside for international. Thus, we believe there could be some rotation out of NAM stocks, which remains the Consensus trade, and into stocks with more international exposure, like SLB. And on pgs 2-4, we discuss why believe SLB may not be expensive as the bears think. Reiterate OP with new $91 PT (15.0x ’19 EBITDA).
Excluding $2.11bn of charges – related to WesternGeco seismic restructuring, Venezuela write-down, workforce reductions, multiclient seismic data impairment, and other – SLB reported a clean 4Q17 EPS of $0.48, beating both Consensus and WR estimate of $0.44. EBITDA of $1,842mm was slightly above Consensus/WR of $1,837mm/$1,818mm. Revenue of $8,179mm (Consensus/WR = $8,116mm/$8,015mm) was up 3% q/q led by 9% seq increase in Cameron topline. Consolidated EBIT margins of 11.4% slightly beat Consensus & WR of 11.0%/11.0% driven entirely by Reservoir Characterization margins of 22.0% vs WR/Cons of 17.5%/16.1%, which benefitted from YE high margin software sales, multi-client late sales and some positive POC accounting true-ups on some ME projects. Excluding these more one-off items for Reservoir Characterization, 4Q was generally in-line. NAM topline increased 8% q/q while international was up 2% q/q. FCF was $456mm including $1.1bn of SPM investments.
We reiterate our call on NOV first laid out when we downgraded the stock to UP in October. 4Q looks to be mostly in-line with Consensus, but a miss was never part of the thesis. We are concerned, however, that ’18 Cons EBITDA has material downside risk. Our current $813mm is 12% below Consensus. Further, we believe the transition to onshore has mostly played out. With NOV trading at nearly 20x WR ’18 EBITDA, the onshore pivot is now priced in and risk to ’18 Cons is not reflected in shares. Accordingly, we think NOV will underperform in 1H18. Maintain $30 YE18 PT (11x WR ’19 EBITDA).
We view this morning’s (01/16/2018)announcement of the 2025 notes positively as the incremental term issuance will reduce the amount on its revolver in the near-term. The company’s reluctance to term out revolver debt has been a source of frustration among investors. However, between the notes issuance and last month’s announcement of the Saudi jackups sale, we are becoming more constructive on NBR given what appears to be a growing sense of urgency to divest businesses to reduce debt while keeping a clean revolver.
We conducted our 1st quarterly OFS investor survey, with the overwhelming majority (69%) expecting OFS to outperform in ’18. Only 16% see underperformance. In ‘17, the OSX was -19%, a big divergence vs the S&P 500 (+19%). See note for detailed results and opinions on all 12 survey questions. Thanks again to all 104 participants!
With oil prices now firmly above $60/bbl and OFS stocks still 25% below, on average, compared to late ‘16 / early ’17 peaks (when oil prices were actually >10% lower), it’s hard to be outright bearish in the near-term. We frankly didn’t foresee this demand driven rally in oil prices as our generally cautious thesis last yr was based on a view US shale oil production will grow too much, too fast. Well, that actually happened. US lower 48 (ex GoM) oil production likely surged ~1.3MMbopd last yr. Irrespective of a more positive near-term outlook for the stocks, we maintain our Market Neutral sector weighting given our still longer-term concerns regarding US shale and secular deflation.
This morning (1/8/18), the company filed an 8k announcing the sudden resignation of Chief Global Operations Officer, Belgacem Chariag. Investor fear is that Mr. Chariag may have been forced out, fueling some concerns that 4Q execution could have again been disappointing. After talking to the company a bit ago, it is clear Mr. Chariag was not forced out. The decision to leave the company was solely Mr. Chariag’s. Therefore, we do not think this is necessarily a negative read through for 4Q earnings. Reiterate our OP rating on BHGE, which is our Wolverines top pick for 1H18. Maintain YE18 PT of $39 (10x WR ’19 EBITDA).
Earlier this morning (1/2/18), Mike Kiernan, Wolfe’s Director of Research, sent around the Wolverine update for the firm’s top fundamental picks for the next 6-12 months (see his email below). Always a believer in marrying the fundamentals with the technicals, I thought it would be helpful to provide the charts for each. While a few have some work to do, there are plenty of constructive setups on both the long and short side.
After the market close on Friday (12/29), WFT (PP) and SLB (OP) announced revised deal terms for the OneStim JV. The new deal no longer includes a JV between the companies, with WFT now only receiving $430mm of cash for their US pressure pumping and pump-down perforating businesses. Additionally, WFT will no longer sell their NAM multistage completions business to SLB. Therefore, WFT is selling US pressure pumping at a steep discount to replacement costs and no longer retaining a minority interest in OneStim, so we view the revised deal as negative for WFT, but slightly positive for SLB. See note for detailed discussion and analysis.
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