The oil industry is a relatively defensive sector so it is always exciting to find an oil company or oil services company trading below the value of its assets and offering value.
Superior Energy sales and market capitalization
Superior Energy Services, Inc. (NYSE:SPN) produces and offers drilling equipment and production-related solutions to energy companies around the world. The company has a market capitalization of just under $4 billion, with sales totaling $4.5 billion during 2012. Daily volume averages around 1.7 million.
According to its own presentation, Superior Energy Services, Inc. (NYSE:SPN) is the world’s third-largest provider of drilling products and services, and the world’s fourth-largest onshore well servicing company.
Since the beginning of May this year, Superior Energy Services, Inc. (NYSE:SPN)’s stock has been on a downward trend. It would appear this trend was not sparked by anything in particular, as the company reported fiscal first quarter results that were in-line with normal results. In addition, the company rallied off the back of poor fiscal second quarter results, though the rally was confined by a downward technical channel. This was good news as the persistent downward trend has pushed Superior Energy’s stock to a level below the firm’s book-value per share of $27.4, reported at the end of the second fiscal quarter.
Expansion in shareholder equity
In addition, Superior Energy Services, Inc. (NYSE:SPN)’s shareholder equity has expanded year-on-year by 8 percent as the company has paid down some long-term debt. All in all, the company has a low debt-to-asset ratio of 23 percent, and the total current assets cover current liabilities two-and-a-half times. Furthermore, levels of inventory are low, so the company’s quick ratio is not much different.
Superior Energy Services, Inc. (NYSE:SPN)’s position in the oil & gas industry will allow the company to ride a tidal wave of rising CAPEX spending that is set to hit the industry over the next 4-5 years. Specifically, CAPEX spending on new projects by international oil and gas companies is expected to expand by 50 percent by 2018. Currently, annual capital spending is around $307 billion annually but this is expected to rise to $462 by 2018.
To complement its existing position in the industry, Superior Energy Services, Inc. (NYSE:SPN) is looking to boost its sales through acquisitions. In particular, management is looking to acquire smaller peers that provide local content and have a successful operating legacy. Superior Energy’s management is aiming for the company to be free cash flow positive by the end of 2013, which should support the company’s acquisition strategy.
Superior Energy earnings report
Indeed, this strategy of achieving growth through small, strategic operations is already yielding strong results for the company. At the end of fiscal Q2, Superior Energy reported EBITDA margins were the second best in the oil services industry, after giant Schlumberger. Moreover, despite the fact that industry behemoth Halliburton Company (NYSE:HAL) is more than ten times the size of Superior Energy. During the past three years, Superior Energy Services, Inc. (NYSE:SPN)’s EBITDA margin has stayed at least 400 bps above that of Halliburton, showing that in this case, bigger is not always better.
All in all, Superior Energy is currently trading below its book value per share, and has a solid plan for future growth through strategic acquisitions. It is achieving better profit margins than many of its larger peers. Superior Energy looks like it could achieve good returns for investors over the next few years.