Oil States International (NYSE:OIS) reports Q4 earnings Thursday. Analysts expect revenue of $176.76 and eps of -$0.22. The revenue estimate implies a 1% decline sequentially. Investors should focus on the following key items. <\/p>\n
Land Drilling Performance Should Be Stellar ... <\/p>\n
Results from Oil States' land drilling operations will likely be stellar. Q3 revenue from the segment increased 14% sequentially as animal spirits returned to the oil patch. I expect a repeat performance this quarter. The North America rig count was up by over 20% during the quarter. Competitors such as Core Labs (NYSE:CLB), Baker Hughes (NYSE:BHI) and Halliburton (NYSE:HAL) showed outperformance in North America this quarter. That bodes well for Oil States. <\/p>\n<\/p>\n
The company receives about 26% of its revenue from Wellsite Services. The lion's share of its customers are located in the Permian basin where drilling activity has been robust. Another double-digit revenue increase would not be out of the question. There are still thousands of drilled, yet uncompleted wells. If oil prices remain robust then Wellsite Services could have a strong first half of 2017. <\/p>\n
... While Offshore Would Likely Disappoint <\/p>\n
The company's offshore segment will likely disappoint again. Offshore sustained the company during the oil price rout. However, its revenue fell 2% sequentially last quarter. That was likely a bad omen. Oil States' long-term offshore contracts might be expiring at a time when oil prices do not justify additional investment in the sector. <\/p>\n
Experts believe offshore will not rebound until 2018 or 2019. That's problematic as the segment now represents over 75% of total revenue. Another single-digit decline by Offshore could trigger a revenue miss. A weak outlook from management could sink the stock. <\/p>\n
Will EBITDA Margins Hold Up? <\/p>\n
Oil States' EBITDA margins have ranged from 7%-8% over the past few quarters. Management has done a yeoman's job of cutting costs to stem losses and cash burn. However, if its largest segment takes a turn for the worst it could be difficult to maintain EBITDA margins. Moreover, if the company pares costs any further it might cut into muscle and hurt efficiency. <\/p>\n
Conclusion <\/p>\n
Growth in land drilling revenue will not likely be robust enough to offset the decline in Offshore. I also expect weak guidance for Q1 2017 due to Offshore's demise. <\/p>\n
Disclosure: I am\/we are short BHI, HAL. <\/p>\n
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. <\/p>\n
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Will Offshore Stymie Oil States? - Seeking Alpha<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Oil States International (NYSE:OIS) reports Q4 earnings Thursday. Analysts expect revenue of $176.76 and eps of -$0.22. The revenue estimate implies a 1% decline sequentially Continue reading