Just when you thought the oil crash was over, the U.S. comes out with a weaker-than-expected GDP, raising questions about domestic growth. And with a number of foreign markets not really providing any good news to speak of, one has to wonder if oil prices can climb back into the $60s (or even the $50s) in the near term.
Given these trends, it should come as no surprise that many oil stocks have seen huge cuts to their earnings outlooks with more worries hitting the space the longer this oil crash continues. And while integrated oil companies (think firms like ExxonMobil) have held up relatively well all things considered, those in the oil field services segment have not been so lucky.
Firms here often benefit from fracking operations and generally high interest in oil exploration. However, with oil prices below $50/bbl., many fields are unprofitable dulling the appeal of new ventures across the country. And if that wasn’t enough, many companies that use these services are demanding price cuts now in order to stay competitive, a trend that we just saw with the in-focus company of RPC (NYSE:RES).
RPC in Focus
RPC just reported earnings a few sessions ago , and though the report wasn’t bad by any means, there are definitely some worries on the horizon. Pricing power looks to be a theme for the year, while there are concerns that cost-cutting will need to take place in order to stay competitive given lower prices on items sold.
“Customers planning to continue exploration and production activities in 2015 are seeking service cost reductions to offset the declines in their projected production revenues,” said CEO Richard Hubbell in a release. “These factors will definitely have a negative impact on our 2015 financial results.”
Given this bearish outlook, it shouldn’t be too surprising to note that earnings estimates have been coming down across the board for RPC. In fact, not a single estimate has gone higher in the past 60 days, while we have seen five lower for the current quarter, and three lower for the current year in just the past week alone.
This has been pushing the estimate trend sharply lower with the full year consensus crashing from $1.57/share 90 days ago to just 86 cents a share today. If this holds true it means that RPC could post a 24% earnings contraction when compared to the previous year.
And to top off the bad news, the more recent estimates have been extremely low, suggesting that the consensus could fall even further. At time of writing the ‘Most Accurate Estimate’ was at just 39 cents for the current year, a massive 50% plunge from the current consensus.
Given these incredibly bearish numbers, it shouldn’t be a surprise to note that RPC (NYSE:RES) has a Zacks Rank #5 (Strong Sell) and that we are looking for more underperformance from the company in the near term. Furthermore, the oil field services industry has a rank in the bottom 10%, so there is little hope for a turnaround in this space soon.
Just a single company in the industry has managed to avoid this trend, Transocean Partners (NYSE:RIGP). This company actually has a Zacks Rank #1 (Strong Buy) and a nice dividend of over 6% to boot. So if you are looking to stay in this industry for a near term play, and you probably shouldn’t, RIGP may be a better selection than RPC, though it is going to be a tough battle either way for this struggling sector.