Analysts at Barclays downgraded the energy services sector on Wednesday, moving it from a “Positive” to a “Neutral” rating due to a bearish outlook on the oil market. Despite stable service and equipment markets and disciplined pricing, the sector has seen little investment, with analysts warning of the possibility of further cuts to 2025 earnings.
After experiencing three years of strong, double-digit growth, the energy services sector is now facing a slowdown in spending, reaching what analysts describe as a “mid-cycle plateau.”
Barclays strategists, led by J. David Anderson, noted that it’s unlikely the sector will see significant outperformance until there is greater clarity regarding OPEC‘s production cuts and macroeconomic data improves. “It’s very difficult to see any of the ‘beta-driven’ names outperform until the OPEC cut overhang is removed and the macro data points start turning positive,” Anderson wrote in a note to investors. He added that another earnings cut for 2025 remains a risk.
In terms of specific companies, Barclays upgraded Oceaneering International (NYSE: OII) to “Equal Weight” from “Underweight,” citing its strong robotics business and high-margin, low-capital expenditure profile. Barclays also raised Oceaneering’s price target to $26, up from $22.
However, the bank downgraded Valaris Ltd (NYSE: VAL) to “Equal Weight” from “Overweight,” pointing to challenges such as a lack of contracts for the company’s floaters and the decision to “warm-stack” a drillship. Barclays reduced Valaris’ price target to $49, down from $59.
Amid these market shifts, Barclays is recommending investors focus on companies with minimal exposure to upstream spending. These include Schlumberger (NYSE: SLB), TechnipFMC (NYSE: FTI), Baker Hughes (NASDAQ: BKR), Tenaris (NYSE: TS), and Transocean (NYSE: RIG).
Meanwhile, Goldman Sachs also expressed a cautious outlook for the sector due to limited potential for activity changes. However, Goldman analyst Ati Modak upgraded Patterson-UTI Energy (NASDAQ: PTEN) to “Buy” from “Neutral,” setting a $10 price target. Goldman also maintains “Buy” ratings on Schlumberger and Halliburton (NYSE: HAL), but has a “Sell” rating on NOV Inc. (NYSE: NOV) and Helmerich & Payne (NYSE: HP), citing weaker returns and revisions compared to peers.
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