BUSINESS
Oil States International, Inc., through its subsidiaries, provides oilfield products and services for the drilling, completion, subsea, production, and infrastructure sectors of the oil and gas industry worldwide. The company operates through three segments: Well Site Services, Downhole Technologies, and Offshore/Manufactured Products. The Well Site Services segment offers a range of equipment and services that are used to drill for, establish, and maintain the flow of oil and natural gas from a well throughout its lifecycle. It also provides wellhead isolation, frac valve, wireline and coiled tubing support, flowback and well testing, pipe recovery systems, gravel pack and sand control, blowout preventer, and drilling services.
INVESTMENT RATING
OIS is expected to be a modest Value Builder reflecting capital returns that are forecasted to exceed the cost of capital.
Oil States has a current Value Trend Rating of C (Low Neutral).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. Oil States has a good Appreciation Score of 72 but a poor Power Rating of 20, and the Low Neutral Value Trend Rating results.
Oil States’ stock is selling well below targeted value. The current stock price of $5.48 compares to targeted value 12 months forward of $11.
Oil States’ high appreciation potential results in an appreciation score of 72 (only 28% of the universe has greater appreciation potential.)
Oil States has a Power Rating of 20. (OIS’ poor Power Rating indicates that it only has a higher likelihood of achieving favorable investment performance over the near to intermediate term than 20% of companies in the universe.)
Factors contributing to this poor Power Rating include: OIS’ earnings estimates have fallen very significantly in recent months; and recent price action has been unfavorable. An offsetting factor is the Oil & Gas Field Machinery, Equipment comparison group is currently in a modestly favorable position.
INVESTMENT PROFILE
Oil States’ financial strength is poor. Financial strength rating is 8.
Relative to the S&P 500 Composite, Oil States International Inc has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that OIS is higher risk. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, and high stock price volatility. Oil States’ valuation is moderate: low dividend yield, moderate P/E ratio, and low price/book ratio. OIS has unusually low market capitalization.
CURRENT SIGNALS
Oil States’ current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
Oil States’ current technical position is very weak. The stock price is in a 7.2 month down move. The stock has declined 26.6% from its prior high. The stock price is below its 200 day moving average which is in a downtrend.
ALERTS
Oil States International Inc (NYSE: OIS) suffers from meaningful negative changes in investment behavior: the stock fell on very heavy volume.
Recent important negative changes in fundamentals have impacted Oil States International Inc (NYSE: OIS): significant quarterly sales deceleration occurred, the consensus estimate for December, 2024 decreased significantly, and the consensus estimate for December, 2025 decreased significantly.
The stock is currently rated C.
Oil States International Inc (NYSE: OIS) stock closed at $5.48 on 2/26/24 after a modest decline of -1.3%. Moreover, exceptionally high trading volume at 207% of normal accompanied the decline. The stock has declined -11.3% during the last week and has been weak relative to the market over the last nine months.
CASH FLOW
In 2023, Oil States generated a significant increase in cash of +$5.09 million (+12%). Sources of cash were larger than uses. Cash generated from 2023 EBITDA totaled +$81.21 million. Non-operating sources contributed +$3.58 million (+4% of EBITDA). Cash taxes consumed -$1.87 million (-2% of EBITDA). Re-investment in the business amounted to -$58.39 million (-72% of EBITDA). On a net basis, debt investors received -$26.53 million (-33% of EBITDA) while equity investors supplied +$7.10 million (+9% of EBITDA).
Oil States’ Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Oil States Peer Group. In most years, Oil States was in the top quartile and second quartile. Currently, Oil States is above median at +4% of EBITDA (+$3.58 million).
Oil States’ Cash Taxes, %EBITDA experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Oil States Peer Group. (Since 2020 Cash Taxes, %EBITDA has experienced a very sharp recovery.) In most years, Oil States was in the third quartile and top quartile. Currently, Oil States is slightly below median at -2% of EBITDA (-$1.87 million).
Oil States’ Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Oil States Peer Group. (Since 2020 Business Re-investment, %EBITDA has experienced a very sharp recovery.) In most years, Oil States was in the top quartile and second quartile. Currently, Oil States is slightly above median at -72% of EBITDA (-$58.39 million).
Oil States’ Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Oil States Peer Group. (Since 2021 Debt Investors, %EBITDA has accelerated very sharply.) In most years, Oil States was in the third quartile and lower quartile. Currently, Oil States is below median at -33% of EBITDA (-$26.53 million).
Oil States’ Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Oil States Peer Group. In most years, Oil States was in the second quartile and third quartile. Currently, Oil States is slightly above median at +9% of EBITDA (+$7.10 million).
Oil States’ Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Oil States Peer Group. (Since 2020 Change in Cash, %EBITDA has experienced a very sharp recovery.) In most years, Oil States was in the lower quartile and top quartile. Currently, Oil States is slightly above median at +6% of EBITDA (+$5.09 million).
Oil States’ Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Oil States Peer Group. In most years, Oil States was in the lower quartile and third quartile. Currently, Oil States is substantially below median at +6%.
PROFITABILITY
Oil States’ return on equity has eroded very significantly since 2014. The current level is 1.8% versus the high of 9.5% and the low of -61.8%.
This very significant erosion was due to very strong negative trend in pretax operating return offset by strong positive trend in non-operating factors.
The productivity of Oil States’ assets remained stable over the full period 2014-2023: asset turnover has exhibited little to no overall change but it experienced very sharp improvement from the 2016 level.
Additionally, pretax margin experienced a strong overall downtrend but it experienced a very sharp recovery after the 2020 low.
Non-operating factors (income taxes and financial leverage) had a significant positive influence on return on equity.
Oil States’ return on equity is above median (1.8%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is above median (1.5%) reflecting asset turnover that is above median (0.75X) and above median pretax margin (2.0%).
Tax “keep” rate (income tax management) is substantially below median (81.5%) resulting in after tax return on assets that is above median.
Financial leverage (leverage) is at the lower quartile (1.47X).
GROWTH RATES
There are no significant differences between Oil States’ longer term growth and growth in recent years.
Oil States’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been -8.0% per year. (More recently it has been 9.1%.)
Total asset growth has been -7.9% per year.
Annual E.P.S. growth has been -16.2% per year. (More recently it has been 47.5%.)
Equity growth has been -10.0% per year.
No consensus growth rate forecast is available for Oil States.
Relative to the Oil States Peer Group, Oil States’ historical growth measures are consistently third quartile. Revenue growth (-8.0%) has been substantially below median. Total asset growth (-7.9%) has been substantially below median. E.P.S. growth (-16.2%) has been substantially below median. Equity growth (-10.0%) has been substantially below median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Oil States’ stock price performance has been volatile and significantly below market. Between April, 2013 and February, 2024, Oil States’ stock price fell -94%; relative to the market, this was a -98% loss. Significant price moves during the period: 1) September, 2022 – February, 2023: +135%; 2) October, 2020 – February, 2021: +194%; 3) March, 2020 – June, 2020: +134%; 4) December, 2019 – March, 2020: -88%; 5) April, 2018 – December, 2018: -60%; and 6) October, 2013 – September, 2015: -76%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -27.9% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -27.9% is substantially below median relative to Oil States International Inc Peer Group.
Current 5-year total return performance of -18.6% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of -18.6% relative to S&P 500 Composite, Oil States’ total return performance is lower quartile relative to Oil States International Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, OIS’ overall valuation is low. The highest factor, the price/earnings ratio, is at the upper quartile. Ratio of enterprise value/earnings before interest and taxes is above median. Ratio of enterprise value/assets is lower quartile. Ratio of enterprise value/revenue is lower quartile. The lowest factor, the price/equity ratio, is lower quartile.
Relative to Oil States Peer Group, OIS’ overall valuation is quite low. The highest factor, the price/earnings ratio, is slightly above median. Ratio of enterprise value/earnings before interest and taxes is slightly below median. Ratio of enterprise value/assets is lower quartile. Price/equity ratio is lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Oil States has a major value gap compared to the median. For OIS to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.66X to 1.76X. If OIS’ ratio of enterprise value/revenue were to rise to 1.76X, its stock price would be higher by $13 to $19.
For OIS to achieve upper quartile valuation relative to the Oil States Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.66X to 2.66X. If OIS’ ratio of enterprise value/revenue were to rise to 2.66X, its stock price would increase by $24 from the current level of $5.48.
VALUE TARGETS
OIS is expected to be a modest Value Builder reflecting capital returns that are forecasted to exceed the cost of capital.
Oil States’ current Price Target of $12 represents a +112% change from the current price of $5.48.
This high appreciation potential results in an appreciation score of 72 (only 28% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 72, the low Power Rating of 20 results in an Value Trend Rating of C.
Oil States’ current Price Target is $12 (-8% from the 2023 Target of $13 but +112% from the 02/26/24 price of $5.48). This slight fall in the Target is the result of a -22% decrease in the equity base and a +18% increase in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple. The forecasted growth has no impact. The forecasted increase in cost of equity has a very large negative impact.
PTR’s return on equity forecast is 6.6% — slightly above our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2015 and 2023. The current forecast is steady at the 2015 peak of 6%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth erratic between 2015 and 2023. The current forecast is steady at the 2015 peak of 0%.
PTR’s cost of equity forecast is 5.1% — in line with recent levels. Forecasted cost of equity exhibited a modest, erratic increase between 2015 and 2023. The current forecast is above the 2015 low of 2.8%.
At Oil States’ current price of $5.48, investors are placing a negative value of $-7 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 4.0% versus a cost of equity of 3.6%.
PTR’s 2025 Price Target of $12 is based on these forecasts and reflects an estimated value of existing assets of $11 and a value of future investments of $0.
Be the first to comment