1、North America Equity Research29 October 2019 Oil Services&Equipment3Q19 Earnings Preview Part II:Setups,Hurdles&Quick TakesOil Services and EquipmentSean C Meakim,CFA AC(1-212)622-Bloomberg JPMA MEAKIM J.P.Morgan Securities LLCDanyel J Desa(91-22)6157-J.P.Morgan India Private LimitedAndrew P Herring
2、,CFA(1-212)622-J.P.Morgan Securities LLCCorey Mergenthaler,CFA(1-212)622-J.P.Morgan Securities LLCSee page 42 for analyst certification and important disclosures,including non-US analyst disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,i
3、nvestors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment Were plowing ahead with 3Q19 earnings,and in this note we provide a consolidated set of ear
4、nings previews across the balance of our coverage reporting from 10/29 onwards(our first installment is available here),including quick takes on where we think buy-side and sell-side expectations deviate and what potential catalysts well be monitoring on the calls.A more in-depth summary of our thou
5、ghts and estimates v.consensus for each stock can be found in the interior.Thus far this earnings season has been a“cover the bad news”event,particularly for NAM onshore stocks(frac+12%,land rigs+8%v.OSX+5%)as yet another“buy the last cut”narrative is working on one-sided short positioning.Meanwhile
6、,“safety stocks”are getting sold(FTI-10%)or at least not participating in the rally(BKR/NOV avg.-2%).Were skeptical theres enough legs in this surge to sustain itself through the next few weeks of generally weak results and tougher guides.While most have flocked to international and offshore for dir
7、ectional improvement,offshore data points have been fairly minimal,with few large equipment orders and muted fleet updates from offshore drillers DO and RIG.Below we provide“one liners”on the previews in this report,categorized by our expected market reaction to the prints and how wed respond.3Q19 O
8、ne LinersNeutral:BHGE:Expecting another uneventful quarter for Baker as the link to FY guidance has been long understood to rest on 4Q;OFS/OFE likely tread water with modest improvement in top-line and margins,but 3Q inbound should be solid;FCF conversion still in focus and 2H19 will be a key litmus
9、 test.HP:We see risk of H&P falling short of FY4Q estimates(JPMe FY4Q EBITDA-4%v.Street),though with a high degree of short interest we think negative expectations are largely reflected in the share price.Dayrates will be under increasing pressure in upcoming quarters in our view,but as long as HP m
10、aintains discipline we think the decline should be gradual.We model sufficient FCF to cover the div through 2021,but with very little margin for error.OII:Oceaneering appears set up to deliver an in-line print this quarter though we remain cautious of longer-term estimate levels;we expect AdTech to
11、lead the segments higher on greater non-O&G work;Projects remains the wildcard,we model a flattish 3Q despite seasonality(and off a disappointing 2Q).DNOW:3Q results should largely match consensus after significant negative revisions to 2H19 estimates;Process Solutions a recent bright spot but were
12、not sure how much longer DNOW can outrun the declines in L-48 D&C activity;G&A mgmt.has been solid,more needed;WC conversion to FCF in focus.FI:Were expecting a neutral response to Franks print but do see a scenario where shares react favorably should the company articulate its cost-reduction strate
13、gy well;our in-line 3Q revenue implies a 1%decline q/q on flat margins(11%);were interested to see the remaining 4Q bridge to reach the stated goal of 30-50%incremental margins(JPMe 30%).2North America Equity Research29 October 2019Sean C Meakim,CFA(1-212)622- MRC:The print itself is fairly de-riske
14、d after a(nother)guide-down in early Sept;downside risks in upstream and midstream increasingly priced into the stock;gas utes and downstream should be more stable;we expect G&A reductions to preserve margins and FCF to further de-risk the balance sheet.PUMP:We see ProPetros 3Q print at risk of a mi
15、ss as we think the company will have difficulty shielding itself from slowing completions activity towards the end of the quarter.However,we believe the stock has been overly punished by investor concerns over potential new negative disclosures,and think company commentary may prove better than Stre
16、et expectations.VAL:This is set to be a volatile quarter for EBITDA(JPMe$18m,-69%q/q)mostly due to contract expiries and costs pushed into 3Q.Given last weeks FSR,there are limited opportunities for an upside surprise in our view.NBR:Expecting an in-line print this quarter as we think slowing U.S.ac
17、tivity and intl challenges are well reflected by estimates.Into 2020,however,we see few growth levers for NBR,leaving us skeptical if sufficient FCF can be generated to make much progress deleveraging the balance sheet near-term.NESR:Were modeling a sequentially flat quarter on revenue and EBITDA on
18、 a seasonally slow 3Q;still expect FY revenue growth of+25%as some of 3Q work gets pushed to 4Q;long-term view unchanged,believe NESR will continue to broaden its scope and footprint in a growing MENA market.NE:We think the quarter will be straightforward as NE clears a low bar;we estimate EBITDA of
19、$55mm(-41%q/q).Meaningful updates since the last FSR seem unlikely,so we dont see much to inspire investor confidence,aside from a smart CFO hire or surprise Paragon settlement.Cautious:WHD:Following FTIs Surface guide-down(on NAM headwinds)we cautiously approach Cactus 2H19 prints;were expecting an
20、 in-line 3Q,with revenue down 6%q/q,but see risks to 4Q estimates amidst a pervasive NAM slowdown and tariff impact(Products margins-300bps q/q);Rental slightly offsets market weakness with new products,but the real push comes in 1H20.LBRT:We think Libertys 3Q print could be challenged as weakening
21、frac demand becomes evident.We see downside bias to our 4Q expectations as the effect of yearend E&P budget exhaustion could be quite severe for LBRT and peers,and affirmation of such could pressure the stock.WTTR:We are cautious on Selects 3Q results as worsening NAM completions demand will likely
22、weigh on the companys core Water Services offerings,potentially setting up a miss v.consensus.The 4Q outlook could benefit from positive guidance on the New Mexico fixed infrastructure asset coming online,but we still think the risk to our estimates is skewed to the downside.FRAC:Keane looks positio
23、ned for an in-line quarter as sell-side expectations largely align with our own for the company to meet the lower-end of guidance.However,we think the bridge to 4Q Street EBITDA looks challenged(JPMe$63mm v.Street$66mm),and think the companys outlook will likely call for a reset lower.3North America
24、 Equity Research29 October 2019Sean C Meakim,CFA(1-212)622- NINE:We expect NINE to face a series of well-telegraphed headwinds in the near-term,which are likely already reflected in shares(-75%YTD v.-17%OSX);management candor around the worsening environment has reset expectations and further reinfo
25、rced investor focus on 2020 and upcoming product launches;we anticipate a negative bias to shares until more clarity on the timing of the new product launches is reached.NCSM:Anticipating an in-line print this quarter but see downside risk to 4Q estimates;U.S.budget exhaustion and a sluggish Canadia
26、n rig count could combine for a worse 4Q decline than the prior year;new product launches and continued International growth should support margin expansion but we expect both to be largely 2020 events.4North America Equity Research29 October 2019Sean C Meakim,CFA(1-212)622- Table of Contents3Q19 Ea
27、rnings Calendar.5Diversifieds.6Baker Hughes.6Capital Equipment.9Cactus Wellhead.9Oceaneering International.11NCS Multistage Holdings.13Energy Distributors.15NOW Inc.15MRC Global.17Smid-Cap Services.19Franks International.19Liberty Oilfield Services.21ProPetro.23Select Energy Services.25National Ener
28、gy Services.27Keane Group.29Nine Energy Services.31Land Drillers.33Helmerich&Payne.33Nabors Industries.36Offshore Drillers.38Valaris plc.38Noble Corp.405North America Equity Research29 October 2019Sean C Meakim,CFA(1-212)622- 3Q19 Earnings CalendarTable 1:3Q19 Earnings CalendarSource:Bloomberg,compa
29、ny filings.EARNINGS RELEASE-3Q19CONFERENCE CALL-3Q19COMPANYTICKERREPORT DATESTATUSTIMECALL DATECALL TIME(ET)DIAL-IN NUMBERPASSCODE/IDNabors IndustriesNBR Oct-29ConfirmedAft-mkt 30-Oct11:00(888)317-60039724939Liberty Oilfield ServicesLBRT Oct-29ConfirmedAft-mkt 30-Oct10:00(833)255-2827Baker HughesBKR
30、 Oct-30Confirmed06:45 30-Oct09:00Cactus WellheadWHD Oct-30ConfirmedAft-mkt 31-Oct10:00(866)670-22039897427Oceaneering InternationalOII Oct-30ConfirmedAft-mkt 31-Oct11:00Noble CorpNE Oct-30ConfirmedAft-mkt 31-Oct09:001-833-245-96536469144ValarisVAL Oct-31ConfirmedBef-mkt 31-Oct10:00+1-855-239-3215MRC
31、 GlobalMRC Oct-31ConfirmedAft-mkt 01-Nov10:00412-902-0003NCS Multistage HoldingsNCSM Nov-05EstimateProPetroPUMP Nov-05EstimateFranks InternationalFI Nov-05ConfirmedBef-mkt 05-Nov11:00(888)771-437149117879Superior Energy ServicesSPNV Nov-05ConfirmedAft-mkt 06-Nov09:00888-317-60035519413NOW IncDNOW No
32、v-06ConfirmedBef-mkt 06-Nov09:00National Energy Services ReunitedNESR Nov-06ConfirmedBef-mkt 06-Nov08:001-877-407-0312Keane GroupFRAC Nov-06ConfirmedAft-mkt 07-Nov08:30(877)407-9208Select Energy ServicesWTTR Nov-06ConfirmedAft-mkt 07-Nov10:00201-389-0872Nine Energy ServiceNINE Nov-11EstimateBef-mkt
33、11-Nov10:00877 524-8416Helmerich&PayneHP Nov-15ConfirmedAft-mkt 15-Nov11:00866-342-8591Helmerich6North America Equity Research29 October 2019Sean C Meakim,CFA(1-212)622- DiversifiedsBaker HughesSchedule Details.Release:Wed 10/30 6:45am;Call at 9am;WebcastOur Take:We expect another mostly benign 3Q f
34、or Baker,with in-line numbers and well-worn bridge to FY guidance,particularly in TPS(the company also tweaked guidance mid-quarter,further de-risking surprises).In a sharp contrast to its large cap peers,the companys limited exposure to NAM D&C activity and outsized long cycle mix relieves us from
35、lamenting the decline of the North American rig count in this note.Relative value investors crave the stability in BHGE earnings expectations amid the“Watched Pot Never Boils”cycle and NAM activity shortfalls;we are mostly aligned with BHGE consensus through 2021 while our estimates are on average-1
36、6%/-27%for SLB and HAL 2020/2021 EPS.Weve viewed this bull camp as only having one foot in the bandwagon over the summer though,awaiting the next slug of GE stock.The GE secondary earlier this month relieves some pressure(we dont expect another round until post-4Q results though the window reopens i
37、n December),but generalists seem to have cooled on the name(note the-11%discount required to complete the secondary).The shares have been consistent outperformers over the past year and BHGE is executing well,but its FCF yield is fairly pedestrian while sentiment towards energy exposure continues to
38、 wane.Bridge to FY TPS guidance following familiar path:Following a similar trajectory we saw in 2018,we expect 3Q TPS revenue to be flattish,with a little help on margins(+70 bps q/q),with the big uplift coming in 4Q when we expect our$2bn top line to bridge the gap to FY guidance.So far 80mpta has
39、 been sanctioned since 4Q18 with a number of projects inching closer to FID(e.g.Costa Azul,Driftwood,Qatar).Even if some do get pushed(which we believe is reasonable)for now the LNG“feast”cycle continues.As weve long called out,FCF conversion is key to the investment case for BHGE and 2H19 is a crit
40、ical test to show the business can deliver,though admittedly more weighted to 4Q19.OFS/OFE mostly treading water in 3Q,though nice orders booked look solid:We expect solid q/q progress for OFS in 3Q as BHGEs mix towards intl and production services mitigates much of the challenges of its peers;thus
41、we model solid q/q top line(+3%)and margin progression(+50 bps).In OFE,we expect LSD revenue progression and flat-to-up margin,with the quarter punctuated by the announced order for the Balder X project in the North Sea.Var Energi(majority owned by ENI)awarded the integrated SPS/SURF/EPCI contract t
42、o BHGE and Ocean Installer for 16 SPS.Next tranche of GE shares likely comes in 2020:An interesting wrinkle to the latest GE secondary was the 90 day blackout period(v.prior 180),though we suspect selling OFS stock in mid-December will be tricky;thus we assume a February timeframe is more viable.Mor
43、e critically for BHGE(soon to be rechristened BKR as GEs share has fallen below 50%),corporate costs will be elevated near term as the two companies transition off shared services($110mm/qtr run-rate for now).7North America Equity Research29 October 2019Sean C Meakim,CFA(1-212)622- Table 2:3Q19 Key
44、Operating Metrics,JPMe v.ConsensusTable 3:4Q19 Key Operating Metrics,JPMe v.ConsensusTable 4:2019 Key Operating Metrics,JPMe v.ConsensusSource for all tables:Company reports and J.P.Morgan estimates.Note:$in millions except where noted.3Q19Operating Details3Q19eStreetv.StreetJPMeStreetJPMeStreet1mDe
45、lta3mDeltaEPS(Adjusted,diluted)$0.24$0.242%21%19%n/an/a($0.01)-5%($0.03)-10%Adjusted EBITDA7667581%6%5%5%4%(14)-2%(31)-4%Total Revenue6,1326,1230%2%2%8%8%(31)0%70%EBITDA Margin12.5%12.4%10 bps50bps30bps-40bps-50bps-20bps-50bpsEstimatesGrowth q/qGrowth y/yConsensus Revisions4Q19Operating Details4Q19e
46、Streetv.StreetJPMeStreetJPMeStreet1mDelta3mDeltaEPS(Adjusted,diluted)$0.36$0.37-3%48%52%40%44%($0.00)-1%($0.01)-3%Adjusted EBITDA9459232%23%20%11%8%(8)-1%(11)-1%Total Revenue6,7536,6032%10%8%8%5%(38)-1%(15)0%EBITDA Margin14.0%14.0%0 bps120bps120bps-100bps-100bps0bps-10bpsEstimatesGrowth q/qGrowth y/
47、yConsensus Revisions2019Operating Details2019eStreetv.StreetJPMeStreet1mDelta3mDeltaEPS(Adjusted,diluted)$0.95$0.98-2%50%53%($0.01)-1%($0.02)-2%Adjusted EBITDA3,0563,0321%6%5%(24)-1%(17)-1%Total Revenue24,49324,3411%7%6%(40)0%1651%EBITDA Margin12.5%12.5%0 bps-10bps-10bps-10bps-20bpsEstimatesGrowth y
48、/yConsensus Revisions8North America Equity Research29 October 2019Sean C Meakim,CFA(1-212)622- Table 5:Baker Hughes Quarterly Earnings:JPMe v.Sequential/Annual CompsSource:Company reports and J.P.Morgan estimates.$in millions except where noted.Revenue BreakdownMix3Q19e2Q19q/q3Q18y/yTurbomachinery a
49、nd Process Solutions 23%1,4301,4052%1,3893%Oilfield Services55%3,3543,2633%2,99312%Oilfield Equipment12%7126933%63113%Digital Solutions10%6366321%653-3%Total Revenue100%$6,132$5,9942%$5,6668%Operating Income BreakdownMix3Q19e2Q19q/q3Q18y/yTurbomachinery and Process Solutions 29%14813510%13212%Oilfie
50、ld Services51%26423313%23114%Oilfield Equipment3%181427%6197%Digital Solutions17%86842%106-19%Segment Operating Income100%$516$46611%$4759%Corporate(110)(105)5%(98)13%Merger,Restructuring,Impairment&Other(35)(90)-61%(95)-63%Total Adjusted Operating Income$406$36112%$3778%Total D&A(incl.in COGS&SG&A)