A JPMorgan analyst downgraded several oil services companies Wednesday due to expected spending cuts for capital projects this year.
Analyst Michael LaMotte said he estimates a 15 percent decline in global exploration and production spending in 2009. He cut Smith International Inc. and Transocean Ltd. to "Neutral" from "Overweight," and lowered National Oilwell Varco Inc. and Pride International Inc. to "Underweight" from "Neutral." These downgrades also reflect expectations for sluggish earnings recoveries.LaMotte also reduced its price target for Schlumberger Ltd., the world's biggest oilfield services company, to $55 compared with a previous estimate of $60.
The Oil Service Index is estimated to trade in a volatile but well-defined range of $115 to $160 for some time, LaMotte said. For long-term investors in the oil services sector, LaMotte advised against chasing momentum and suggested building positions in stocks such as Schlumberger and Halliburton Co., which he expects will lead the group in a 2011 recovery.
In addition, LaMotte said oil services and equipment stocks have the worst of the earnings news baked in, but that "making money in the group this year will require patience (to wait for price points) and selling discipline (should rallies get extended)."
Smith International shares fell 3.9 percent to $23.69 in premarket trading. Transocean shares dropped 3.4 percent to $50.25 before the bell. Shares of National Oilwell Varco sank 4.5 percent to $25.27 in premarket trading.
Pride International shares closed at $16.57 on Tuesday. Shares of Schlumberger closed at $42.82 and Halliburton shares closed at 18.30 on Tuesday.
Analyst Michael LaMotte said he estimates a 15 percent decline in global exploration and production spending in 2009. He cut Smith International Inc. and Transocean Ltd. to "Neutral" from "Overweight," and lowered National Oilwell Varco Inc. and Pride International Inc. to "Underweight" from "Neutral." These downgrades also reflect expectations for sluggish earnings recoveries.LaMotte also reduced its price target for Schlumberger Ltd., the world's biggest oilfield services company, to $55 compared with a previous estimate of $60.
The Oil Service Index is estimated to trade in a volatile but well-defined range of $115 to $160 for some time, LaMotte said. For long-term investors in the oil services sector, LaMotte advised against chasing momentum and suggested building positions in stocks such as Schlumberger and Halliburton Co., which he expects will lead the group in a 2011 recovery.
In addition, LaMotte said oil services and equipment stocks have the worst of the earnings news baked in, but that "making money in the group this year will require patience (to wait for price points) and selling discipline (should rallies get extended)."
Smith International shares fell 3.9 percent to $23.69 in premarket trading. Transocean shares dropped 3.4 percent to $50.25 before the bell. Shares of National Oilwell Varco sank 4.5 percent to $25.27 in premarket trading.
Pride International shares closed at $16.57 on Tuesday. Shares of Schlumberger closed at $42.82 and Halliburton shares closed at 18.30 on Tuesday.
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