This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Energy Stocks Face Their Own Fiscal Cliff

The outlook of possible austerity as integrated oil and gas giants face the prospect of reigning in drilling budgets matches a phenomena already mapped out by Guggenheim Securities for more highly leveraged independent drillers.

In September, Guggenheim Securities analyst Michael Lamotte highlighted that Chesapeake Energy's financial struggles are reflective of a wider cash crunch for shale drillers that may hit at sector-wide earnings.

Notably high debt levels may force drillers to pull in spending budgets, in a move that would depress earnings and the outlook for rig contractors.

Heading into the third quarter, Guggenheim's Lamotte sees little reason to change a bearish industry forecast and points out trends energy sector investors may be wise to hone in on heading into 2013.

After rig contractors like Halliburton continue to cut earnings estimates as rig counts fall, Lamotte highlights that balance sheet liquidity, in addition to operating restraint, may be an industry trend through year-end. Still, the bigger question is whether falling earnings will color the sector outlook for 2013.

The reason for the rig count decline is not just a matter of opinion, as it is foundational to the shape of the recovery in drilling next year. Whereas budget discipline implies that E&P spending can grow in line with consensus cash flow growth expectations (now +14%), our liquidity analysis suggests that E&P spending will be down for the full year," writes Lamotte, in an earnings preview.

Lamotte notes that even with reduced guidance for the fourth quarter and the first quarter of 2013, earnings estimates for oilfield service companies and independent drillers may be too high. He advises clients to focus on the secular growth of deepwater rig contractors like Slumberger (SLB - Get Report) and Tenaris (TS).

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
COP $68.61 1.36%
CHK $15.30 -0.97%
HAL $47.85 2.05%
SLB $92.47 -0.42%
XOM $87.24 0.36%

Markets

DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs