Stock of the Week
NYSE Symbol: WFT
Industry: Oil Service
Price as of 7/29: $21.92
So much for last weeks' rally. Congressional infighting over the debt ceiling and cautious corporate guidance for the third quarter sent the major averages down 4% this week. A number of commodity related stocks got hit this week on concerns of a slowing economic development in the U.S. and Asia. However this week we'll feature a commodity stock that came running out of the shoot on Monday thanks to a positive article in Barrons last week. The featured stock of the week is the fourth largest oilfield service company, Weatherford International. Weatherford is a beaten down oil driller tied in with the BP oil spill from last year, an accounting probe, and bribery charges. Not the kind of headlines a company wants to make, but the positive Barrons article coupled with better than expected earnings, should start to change some minds on Weatherford. Weatherford is certainly not a conservative investment, but investors looking for long term growth prospect may want to look at the beaten down oil service company.
The Switzerland-based company posted second-quarter net income of $110 million, or 15 cents a share, compared with a year-earlier loss of $48 million, or 6 cents a share. Revenue rose 25 percent to $3.05 billion, a record for the company. Excluding one-time items, Weatherford posted earnings per share of 17 cents, beating analysts' average forecast by 2 cents. The company expects third-quarter earnings per share, before one-time items, of 24 cents to 26 cents, in line with analysts' estimates. Like its peer, Baker Hughes, Weatherford said a strong U.S. performance in the second quarter offset seasonal weakness in Canada, while growth continued outside North America as strong oil prices drove greater spending by its oil and gas producing customers. Looking forward, Chief Executive Bernard Duroc-Danner said the company was now targeting full-year revenue growth of 25 percent, up from 20 percent previously, with profit margins improving broadly. Some analysts' forecasts were as low as 15% growth. The improved forecast was due to positive pricing trends in North America which will accelerate in the second half of 2011. The outlook for international segments has strengthened as well.
The better than expected earnings helped boost the stock, however it remains quite depressed. Currently the stock trades for 26 times current earnings, but only 14 times next years' earnings estimates. The stock also trades for 1.5 times sales and 1.7 times book value of $13 a share. In addressing some of their problems, the CEO replaced their chief accounting officer and is planning on selling non strategic assets to pay down their substantial debt load of $7 billion. Many investors will certainly remain cautious on Weatherford for good reason, but hopefully the better than expected earnings has turned the tide for the firm and their stock price. Weatherford is not a conservative investment, but more of a long term growth play in the oil service industry.