Weatherford International Stock Looks Poised for $30 Per Share

NEW YORK (TheStreet) -- The risk-vs.-reward ratio has now turned in favor of Weatherford International (WFT) , a company I've always wanted to love but just couldn't.

After Weatherford's selling its Russian land drilling and workover operations to Rosneft, Weatherford's Russian exposure has been cut by more than half -- from 7% of revenue to 3%. And with Russian sanctions affecting the likes of Exxon Mobil (XOM) and BP (BP) , Weatherford, which secured $500 million in cash from the deal, looks poised to outperform both in the near and short term.

The stock closed Friday at $22.39, down 0.36%. But the real story is that Weatherford has posted year-to-date gains of 44%, quadrupling the energy sector's 11% gain, according to Morningstar. But it's not yet time to cash in.

Aside from the benefits of the Rosneft deal and the $500 million cash infusion, Weatherford's management is actively rebuilding the business. And the turnaround has only just begun. Divesting the land drilling and workover operations is one example of how management is getting rid of low-margin businesses and spinning off noncompetitive assets.

From my vantage point, despite the stock's already strong year-to-date gains, Weatherford still looks cheap. These shares should reach $30 in the next 12 to 18 months.

Consider that -- based on next year's earnings estimates of $1.76, according to Yahoo -- Weatherford is trading at a price-to-earnings ratio of 12. According to Yahoo, the industry average P/E is 20. Rival Schlumberger (SLB) , which I happen to like, is trading at a forward multiple of 16.

The other thing is, from a price-to-sales comparison, Weatherford's ratio of 1.17 trails not only Schlumberger, but also Halliburton (HAL) and Baker Hughes (BHI) . The industry average P/S, according to Yahoo, is 1.54. This tells me that Wall Street still has not completely bought in to Weatherford's restructuring potential.

In other words, Weatherford's strong year-to-date gains only reverses the declines the company has suffered. Weatherford is only "back to par."

Wall Street's wait-and-see attitude is fine. It's also important for investors to remember, however, that this is not the same company that was once littered with tax and accounting problems. And the company's initiatives are far from complete. Waiting for clearer signs of stability will cost investors money. By then, Wall Street would have already attached a premium to these shares.

To the extent Weatherford can convince Wall Street that it can maintain its lead in the businesses that it does retain, including artificial lifts, pressure pumping and cementation, long-term investors should do well. And based on the recent uptick in global energy demand, I don't see any reason why Weatherford should be doubted.

For now, investors have to be encouraged that management is focusing on higher-margin businesses like pressure pumping, which continues to see strong U.S. demand. Not to mention, it's a key component of hydraulic fracturing, or fracking. So with the stock still trading more than 12% below its 2011 high of $25.65, Weatherford looks like a no-brainer.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

Follow @Richard_WSPB

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


Now let's look at TheStreet Ratings' take on some of these stocks.

TheStreet Ratings team rates WEATHERFORD INTL PLC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate WEATHERFORD INTL PLC (WFT) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, WFT's share price has jumped by 56.25%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • Net operating cash flow has significantly increased by 72.61% to $435.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 27.47%.
  • WEATHERFORD INTL PLC's earnings per share declined by 26.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, WEATHERFORD INTL PLC continued to lose money by earning -$0.44 versus -$1.02 in the prior year. This year, the market expects an improvement in earnings ($1.15 versus -$0.44).
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Energy Equipment & Services industry and the overall market, WEATHERFORD INTL PLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Energy Equipment & Services industry. The net income has decreased by 22.9% when compared to the same quarter one year ago, dropping from -$118.00 million to -$145.00 million.
TheStreet Ratings team rates EXXON MOBIL CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate EXXON MOBIL CORP (XOM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, good cash flow from operations, increase in net income and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • XOM's revenue growth has slightly outpaced the industry average of 2.4%. Since the same quarter one year prior, revenues slightly increased by 2.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Oil, Gas & Consumable Fuels industry average. The net income increased by 28.0% when compared to the same quarter one year prior, rising from $6,860.00 million to $8,780.00 million.
  • Net operating cash flow has increased to $10,202.00 million or 32.78% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -6.15%.
  • XOM's debt-to-equity ratio is very low at 0.12 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that XOM's debt-to-equity ratio is low, the quick ratio, which is currently 0.58, displays a potential problem in covering short-term cash needs.
TheStreet Ratings team rates BP PLC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate BP PLC (BP) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, increase in net income, attractive valuation levels, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 65.0% when compared to the same quarter one year prior, rising from $2,042.00 million to $3,369.00 million.
  • Net operating cash flow has increased to $7,877.00 million or 46.22% when compared to the same quarter last year. In addition, BP PLC has also vastly surpassed the industry average cash flow growth rate of -6.15%.
  • The current debt-to-equity ratio, 0.40, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.93 is somewhat weak and could be cause for future problems.
TheStreet Ratings team rates SCHLUMBERGER LTD as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate SCHLUMBERGER LTD (SLB) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, solid stock price performance and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • SLB's revenue growth trails the industry average of 20.5%. Since the same quarter one year prior, revenues slightly increased by 7.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The current debt-to-equity ratio, 0.33, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, SLB has a quick ratio of 1.55, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Energy Equipment & Services industry and the overall market on the basis of return on equity, SCHLUMBERGER LTD has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Compared to its closing price of one year ago, SLB's share price has jumped by 36.71%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • SCHLUMBERGER LTD's earnings per share declined by 17.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SCHLUMBERGER LTD increased its bottom line by earning $5.11 versus $3.91 in the prior year. This year, the market expects an improvement in earnings ($5.70 versus $5.11).
TheStreet Ratings team rates HALLIBURTON CO as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate HALLIBURTON CO (HAL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, solid stock price performance, impressive record of earnings per share growth and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Energy Equipment & Services industry average. The net income increased by 20.2% when compared to the same quarter one year prior, going from $644.00 million to $774.00 million.
  • HAL's revenue growth trails the industry average of 20.5%. Since the same quarter one year prior, revenues rose by 10.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 31.88% and other important driving factors, this stock has surged by 45.46% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • HALLIBURTON CO has improved earnings per share by 31.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HALLIBURTON CO reported lower earnings of $2.37 versus $2.77 in the prior year. This year, the market expects an improvement in earnings ($4.05 versus $2.37).
  • Despite currently having a low debt-to-equity ratio of 0.54, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that HAL's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.73 is high and demonstrates strong liquidity.
TheStreet Ratings team rates BAKER HUGHES INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate BAKER HUGHES INC (BHI) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Energy Equipment & Services industry. The net income increased by 47.1% when compared to the same quarter one year prior, rising from $240.00 million to $353.00 million.
  • BHI's revenue growth trails the industry average of 20.5%. Since the same quarter one year prior, revenues slightly increased by 8.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • BHI's debt-to-equity ratio is very low at 0.25 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.42, which illustrates the ability to avoid short-term cash problems.
  • Powered by its strong earnings growth of 48.14% and other important driving factors, this stock has surged by 48.61% over the past year, outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • BAKER HUGHES INC has improved earnings per share by 48.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, BAKER HUGHES INC reported lower earnings of $2.47 versus $2.98 in the prior year. This year, the market expects an improvement in earnings ($4.17 versus $2.47).

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