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What’s the Outlook for PTEN, BHGE, and BAS?

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Stock returns compared to industry

Since the beginning of 2017, Patterson-UTI Energy (PTEN) stock has generated -28% returns as of August 1. During this period, PTEN has performed nearly in line with the VanEck Vectors Oil Services ETF (OIH), which has generated -26% returns. Baker Hughes, a GE company (BHGE), has performed better than PTEN. Year-to-date, BHGE has produced -21% returns. Year-to-date, Basic Energy Services (BAS) has given -39% returns and has underperformed oilfield services (or OFS) peers PTEN and BHGE, as well as the industry ETF OIH.

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OFS stocks versus ETFs and crude oil price

BAS, BHGE, and PTEN have underperformed the SPDR S&P 500 ETF (SPY), which has produced 10% returns during the same period. The Dow Jones Industrial Average (DJIA-INDEX) rose 11% year-to-date. The energy sector makes up 5.9% of the DJIA-INDEX. The West Texas Intermediate (or WTI) crude oil price has fallen ~8% since the beginning of 2017. Read more on crude oil price movement in Market Realist’s Is the Worst Over for the Crude Oil Market?

Baker Hughes’s management estimates

BHGE’s management expressed concerns over crude oil price volatility and upstream capex growth. In the 2Q17 earnings conference call, Jeff Bornstein, GE’s (GE) CFO, commented, “The oil and gas environment remains challenging. Our legacy business sees some improvement in activity but we have not seen meaningful increases in customer capital commitment. Oil prices remain volatile and as a result our customers remain cautious. As we’ve said previously, we expect shorter cycle activity to increase in the second half of the year.” Lower upstream capex can lead to lower revenue and margins for the oilfield equipment and service (or OFS) providers.

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Has Seventy Seven Energy helped improve PTEN’s returns?

PTEN’s management believes that the acquisition of Seventy Seven Energy exceeded its expectations. During 2Q17, Seventy Seven Energy contributed 69% of PTEN’s incremental revenue over 1Q17. Mark Siegel, PTEN’s chair, commented in the 2Q17 press release, “Most importantly this merger has strengthened our position in both contract drilling and pressure pumping and has uniquely positioned us as a leader in both of these businesses in the United States. In addition, the merger added a new business line for us in oilfield rentals.”

What are BAS’s management estimates?

Basic Energy Services’ management discussed BAS’s opportunities in 2H17. Thomas Monroe Patterson, BAS’s CEO, commented in the 2Q17 earnings press release, “Looking forward to the second half of 2017, we continue to expect a gradual improvement in pricing and utilization across most lines of business. We currently anticipate additional margin expansion in the third quarter as activity is spreading to more basins and longer daylight hours will benefit our utilization levels.”

Next, we’ll discuss Wall Street analysts’ estimates for Baker Hughes.

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