Why Did Credit Suisse Just Upgrade Oilfield Service & Equipment Stocks?

Courtesy of Benzinga.

• Credit Suisse has upgraded several oil services stocks to Outperform.

• The firm believes that the beginning of February could mark an inflection point for the industry.

• Credit Suisse predicts that the ultimate bottom in U.S. drilling activity is likely coming in the Spring of 2016.

In a new report, Credit Suisse analyst James Wicklund has upgraded a handful of names in the oil services industry. Wicklund believes that investors should be scooping up shares of companies with unconventional North American exposure between now and the beginning of February.

Seasonal Cyclicality

Wicklund points out that February typically marks the end of a six-month market discount period for oil services stocks and that these names typically rebound from early February through at least mid-April. U.S. drilling activity is typically about 7.0 percent higher in the second half of the year than the first half.

The oil services sector was up 12 percent from Feb. 1 to April 15 in 2015.

Bottom Of The Cycle?

Despite the optimism, Credit Suisse is still among the consensus that believes onshore U.S. activity will be down in 2016 compared to 2015. However, the firm believes that oil prices will begin their recovery by the end of next year.

“Looking at the historical seasonality of U.S. drilling activity, and based on that conventional wisdom, it would appear that the cyclical bottom of activity, for what is considered the second-worst downcycle in 30 years, will be in the spring of 2016,” Wicklund explains.

Upgrades

In light of the firm’s belief that a recovery could begin as soon as February, Credit Suisse has upgraded the following stocks from Neutral to Outperform: Forum Energy Technologies Inc (NYSE: FET), Nabors Industries Ltd. (NYSE: NBR) and Superior Energy Services, Inc. (NYSE: SPN).

In addition, Credit Suisse initiated coverage at Outperform on U.S. Silica Holdings Inc (NYSE: SLCA) and Weatherford International Plc (NYSE: WFT).

Disclosure: the author owns shares of Weatherford.

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