On Jan 7, Zacks Investment Research downgraded oilfield services company, Core Laboratories NV (CLB) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
The price of West Texas Intermediate (WTI) crude has tumbled more than 55% since Jun 2014. Crude is now trading below the $50 per barrel threshold. This is owing to plentiful supply of the commodity especially in the face of lackluster global demand. Moreover, oil price is not expected to recover any time soon and will likely remain weak during throughout 2015.
With low crude prices, the upstream energy firms are expected to decrease their investment in exploration and production activities and hence there will be lower demand for drilling and oil field services.
As a result, we don’t see the company earning significantly for its shareholders, since the business of Core Laboratories is positively correlated to the price of crude.
Core Laboratories also expects fourth-quarter 2014 earnings between $1.53 and $1.56, down from $1.56 to $1.61 projected earlier.
Additionally, Core Laboratories relies on its ability to develop and acquire essential products and technologies that drive its operational performance and growth. If their technologies or products become obsolete or cannot be brought to market in a timely and competitive manner, the company might face severe operational and financial crisis.
Stocks to Consider
Better-ranked players in the energy sector include Enbridge Energy Management LLC (EEQ), Cheniere Energy Partners LP (CQP) and Seadrill Partners LLC (SDLP). All these stocks sport a Zacks Rank #1 (Strong Buy).
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