Shares of oil services and equipment giant Schlumberger (SLB) - Get Report rose Monday after a report from analysts at Goldman Sachs indicating strong opportunities in the global oil exploration and production space helped reinforce investors' expectations of further gains.
Schlumberger's stock closed up 2% to $42.08 on the New York Stock Exchange after Goldman initiated coverage with a Buy rating on the company's stock and a 12-month price target of $55.
Strong earnings growth potential, particularly offshore, as well as compelling valuations and diminishing efficiency gains in the U.S. shale space were the key reasons behind Goldman's positive view of Schlumberger as well as other related companies, the analysts said.
A Key Differentiator
"Schlumberger has the highest margins in the international markets but is also more than double the size of its peer group aboard," the analysts said. "As the international market starts to recover and show better growth rates than North America, this should be a key differentiator for Schlumberger."
Zev Fima, a portfolio analyst with AAP said Cramer and his team "have been waiting for an upgrade on this name.
"Years of a lack of production-related investments by global oil exploration-and-production companies in pursuit of improved cash flows are setting up a positive backdrop for Schlumberger as wells begin to dry up and producers are left with little choice but to ramp up production investments," Fima said.
"We view Schlumberger's risk/reward as attractive at current levels, as the upside will come from the E&P investment dynamic while the stock's nearly 5% dividend provides solid downside support." (To read more of Jim and his team's latest thoughts on SLB, click here to check out Jim's Action Alerts PLUS club for investors.)
While trading at an approximate 10% premium to its peers, Goldman believes Schlumberger still appears to be well-positioned from a historical standpoint.
That said, risks remain, including oil prices dipping back below $50 a barrel, increased competition in the U.S. domestic arena and "civil or political challenges in international markets," namely in Iraq and Venezuela.
Goldman also upgraded several oil stocks, including TransOcean Ltd. (RIG) - Get Report , which was also up more than 6%, Halliburton (HAL) - Get Report , up 1.5%, ProPetro Holdings (PUMP) - Get Report , up nearly 3%, and TechnipFMC (FTI) - Get Report , up 2.9%.
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