• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Energy

One of the Safest Bets in Oil & Gas Right Now

As U.S. shale producers become accustomed to the current oil price environment, investors should look to services companies for timely opportunities.
By OILPRICE.COM
Jun 10, 2015 | 06:00 AM EDT
Stocks quotes in this article: FI, BP, HAL, RIG

With the North American rig count now starting to stabilize, investors in the oil and gas space should consider starting to scour the landscape of beaten up servicing companies to look for bargains. There are several attractive options out there right now from Weatherford to nearly all of the major construction contractors, but one of the best investments is a little known company that has largely flown under the radar of most investors.

Frank's International (FI) is a mid-cap provider of engineered tubing and casing to exploration and production companies both onshore and offshore. The company went public in mid-2013 and spent the first year flailing about, trying to figure out how to make the transition from a very successful family owned company with a long history to a publicly traded company. While Frank's has been around since 1938 and operates in dozens of countries all over the world, the firm really lacked the right people in their finance department to help run a smooth operation as a public company beholden to shareholders on a quarter-by-quarter basis.

After some initial struggles including earnings misses, the firm ultimately made some management changes -- just in time to see the global oil markets start to tank last fall. Frank's relies heavily on the offshore side of the E&P field with about 75% of revenues coming from that area. That's both a blessing and a curse. Offshore E&P is a more stable field than onshore, and there are fewer fly-by-night operators in the space. On the other hand, the offshore field is suffering exactly the same issues as onshore, so Frank's has not been insulated from the downturn to any great extent.

At this point, all of these issues are reflected in the company's stock price though. Frank's is trading at around $20 a share currently and the firm earned about $1 a share over the last year. That price-to-earnings multiple (P/E) may seem a little rich, but it's worth considering two important points: 1) Frank's is a technology leader in the space and part of a global duopoly in the tubular market (alongside Weatherford) and 2) at this stage, the company is really experiencing trough pricing and demand. The firm also has no debt, meaning that no matter how long the downturn lasts, or how slow the market is to recover, Frank's is in no trouble whatsoever financially.

As part of a global duopoly, Frank's has outstanding margins -- on the order of 35% to 40% and just as importantly, the firm is a technology leader in the space. Ever since the Gulf of Mexico incident a few years ago, a critical imperative for all offshore companies is making sure that accidents do not happen. As BP (BP), Haliburton (HAL), and Transocean (RIG) all discovered, one bad incident can hobble a company and tie management's hands for years.

To that end, Frank's can play a role in helping drillers reduce the likelihood of an accident by putting the highest quality, most technologically advanced product in place for clients -- and charging a premium for the reassurance that their products provide. Essentially, very few companies are going to scrimp on costs for a solid foundation on which to place their very expensive assets.

Just as importantly, Frank's, like the rest of the sector is also earning at trough levels right now. The company has had to make some price concessions, just like all other service companies in the sector, but those concessions have been pretty minimal. Based on the management calls, it looks like concessions for Frank's have been around 5% to 10% versus an average across the space of perhaps 20%. Frank's pricing is holding up well, and as demand recovers, EPS should ramp up markedly.

Further, within a couple of years, Frank's internal cost cutting efforts should yield an extra $100 million or so in Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). The company currently pulls in roughly $400 million annually in EBITDA. At these levels, Frank's International should have considerable upside over the current price -- a fair price in a year or two might well be double the current stock price.

By Michael McDonald of Oilprice.com

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | U.S. Equity | Energy

More from Energy

I Don't Mean to Be Crude, but Those Bullish Oil Forecasts Are Bull

Maleeha Bengali
Aug 9, 2022 10:00 AM EDT

Oil demand appears to be slipping as supply picks up, which indicates lower prices are ahead.

Solar Firm Sunrun Continues to Run on the Upside

Bruce Kamich
Aug 8, 2022 1:24 PM EDT

Here's what the longer-term picture looks like.

July Jobs Data, Tesla's Ambitions, Boring Big Board, Nasdaq Shines, Oil Slips

Stephen Guilfoyle
Aug 5, 2022 7:06 AM EDT

We'll be focused in particular on the underemployment numbers.

Oil Is Out, Tech Is In, but You Knew That Already, Right?

Helene Meisler
Aug 5, 2022 6:00 AM EDT

As energy is drained, someone told me this week how tech is now the long trade. Where have I heard that before? Also, let's look at the risks of the tech comeback.

No, I'm Not Selling Exxon and Chevron Here

Jim Collins
Aug 4, 2022 2:15 PM EDT

Be careful about drawing a comparison with dry bulk shippers and hydrocarbon names. They're two completely different undertakings.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:44 AM EDT PETER TCHIR

    CPI Beats Expectations, But Maybe Not the 'Whisper'?

    Slightly better-than-expected inflation across the...
  • 01:44 PM EDT STEPHEN GUILFOYLE

    This Holding Lights Up With Strong Earnings

    Check out the latest from TheStreet's Stocks Under...
  • 09:24 AM EDT PETER TCHIR

    Jobs Report Reaction: Incredibly Strong, But Questions to Ask

    An incredibly strong July jobs report. Not only d...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login