Investors returned to oilfield service stocks even as crude prices retreated Tuesday, enticed by hearty earnings, Wall Street optimism and a big payout from Diamond Offshore Drilling Inc.
The Philadelphia Oil Service Sector index rose 0.85 percent to 287.41, but is still off more than 9 percent from a record high last week.
Light, sweet crude for December delivery fell 34 cents to $85.68 on the New York Mercantile Exchange. November crude, which expired Monday, had risen as high as $90.07 last week.
In a flurry of notes, analysts called the sell-off of a number of key companies overblown.
Shares of Schlumberger Ltd., for example, tumbled more than 14 percent in just two trading days after it reported strong third-quarter earnings growth but warned of pricing and margin weakness in North America. Jefferies analyst Stephen Gengaro said the drop "appears to be an overreaction.
"We continue to believe that Schlumberger is extremely well positioned to post solid earnings growth over the next several years, fueled by key international markets and an excellent mix of high-end products and services," he said in a research note. Gengaro rates the stock "Buy" with a $110 price target.
Schlumberger shares rose $3.51, or 3.7 percent, to $98.85.
Shares of its biggest competitor, Halliburton Co., rose 75 cents, or 2 percent, to $40.08.
On Monday, Halliburton's chief executive said the Houston company expected to continue growing in the Eastern Hemisphere and Latin America. The company reported a 19 percent rise in third-quarter income Sunday.
"Halliburton has put up another solid quarter, rivaling Schlumberger in the quality of its earnings growth, yet the stock still gets little credit for this consistent strong performance," said Friedman, Billings, Ramsey analyst Robert MacKenzie, who rates the stock "Outperform."
"As concerns over North American activity dissipate and international growth progresses, we see this gap narrowing," MacKenzie said.
Diamond Offshore was among the sector's biggest gainers. It rewarded shareholders Monday afternoon with a special dividend of $1.25 per share, plus its regular quarterly dividend of 12.5 cents per share. Analysts welcomed the move.
"This should in our view drive a fundamental revaluation of the shares," Morgan Stanley analyst Ole Slorer said. He boosted his rating on the stock to "Overweight" from "Underweight" and hiked his price target to $145 from $119.
Diamond Offshore shares jumped $7.27, or 6.6 percent, to $117.52.
Other oil service shares also rose. Weatherford International, which reported a 25 percent jump in third-quarter profit, rose $2.27, or 3.7 percent, to $62.67. Shares of National Oilwell Varco Inc., scheduled to report results Wednesday, rose $3.23, or 4.7 percent, to $72.76.
Published by Adam Schreck, AP Business Writer
Labels: ATW, BHI, BJS, CAM, DO, ESV, GLBL, GSF, HAL, MS, NBR, NE, NOVL, PDE, RDC, RIG, SII, SLB, TDW, WFT
