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Why Tenaris Is Seeing More ‘Sell’ Recommendations

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Analysts’ recommendations for Tenaris

Tenaris S.A. (TS) is fourth in terms of the highest “sell” recommendations assigned by sell-side analysts in the OFS (oilfield equipment and services) industry. Approximately 6% of the Wall Street analysts tracking Tenaris have recommended a “sell” or some equivalent as of June 25. Approximately 44% of the analysts recommend a “hold,” while 50% recommended a “buy” or some equivalent. Analysts’ consensus target price for Tenaris was ~$40.6 as of June 25. Currently, Tenaris is trading near $35.3, which implies 15% returns over the next 12 months at the current price.

How the rating has changed

On March 25–June 25, the percentage of analysts recommending a “sell” or some equivalent for Tenaris increased from 5% to 6%. Analysts’ “buy” recommendations increased during the same period, while the “hold” recommendations declined. A year ago, ~12% of the sell-side analysts recommended a “sell” for Tenaris.

Why some analysts are bearish

Tenaris had a negative CFO (operating cash flow) in five of the past six quarters. Despite improved revenues, negative changes in working capital led to the negative CFO in the past quarters. The company’s free cash flow has been negative in the past six quarters.

Analysts’ main concern about Tenaris is a slowdown in new developments of complex offshore projects. Offshore projects usually require long investment lead times. There’s overcapacity in steel pipes and seamless steel pipes, which are used to produce tubes. Management expects the competitive environment to intensify and weaken Tenaris’s ability to improve its margins. Overall, management thinks that Oil Country Tubular Goods demand will be more modest in 2018 compared to 2017.

Higher shale drilling activity in the United States and Canada and more upstream activity in the Middle East, North Sea, and Latin America could fuel Tenaris in 2018, which supports analysts’ “buy” recommendations for Tenaris.

Peers’ ratings

Approximately 10% of the sell-side analysts recommended a “sell” for National Oilwell Varco (NOV). Approximately 7% of the analysts assigned a “sell” for TechnipFMC (FTI), while none of the analysts rated Baker Hughes, a GE Company (BHGE) as a “sell.”

Next, we’ll discuss analysts’ “sell” recommendations for Oceaneering International (OII).

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