Expectations On Q2 Earnings Relatively Low, Despite Strong Field Fundamentals: Deutsche Bank

Deutsche Bank says, “Despite myriad macro concerns (potential for slowing growth in China, European sovereign debt issues et al), the most important indicator for upstream companies - the price of oil - has remained remarkably firm. Meanwhile, as the focus has remained on the Gulf of Mexico (GoM) and deepwater, the rest of the market has been quietly improving. As a result, we would not be surprised to see many nonoffshore drilling companies beating earnings which could serve as a catalyst for the group.” “Although the group has staged a modest rally over the last couple of days, we believe expectations remain relatively low. Current valuations seem to be implying sharp downward revisions to estimates. To the contrary, US activity has continued to surprise to the upside. While further improvement seems unlikely with current gas prices, the market seems to have reached a higher sustainable level than most thought possible just three months ago,” the analysts mention. Deutsche adds, “The strength in the US land drilling and pressure pumping markets seems to be well known and reflected in the recent performance of names like Halliburton (HAL) and Patterson (PTEN). Although pricing power is not as widespread, the North American businesses of the other diversified service plays likely benefited from higher activity as well (with the impact of the GoM setting in during Q3). This Q2 uplift then allows them to transition into what we expect to be a strong 2H recovery internationally. Our favorite play on this theme is WFT where expectations remain low and where we continue to expect industry leading international growth.” More Analyst Ratings here