Barclays Downgrades Energy Services Sector to Neutral

Investing.com — Barclays (LON:BARC) analysts revised their stance on the energy services sector on Wednesday, downgrading it to Neutral from Positive amid a bearish oil macro environment.

This setting, analysts note, is expected to impact global spending and investor sentiment in 2025, leading to flat or declining activity levels.

The energy services sector, which saw three years of double-digit growth, is now facing a mid-cycle plateau in spending.

Despite stable service and equipment markets and disciplined pricing, Barclays highlighted the absence of investor capital influx into the sector and the potential for another cut to 2025 earnings as risks.

> “It's very difficult to see any of the "beta-driven" names outperform until the OPEC cut overhang is removed and the macro data points start turning positive with another cut to '25 earnings as a risk,” strategists led by J. David Anderson said in a note.

“With this backdrop, we don't see a path for Energy Services outperforming the rest of the Energy sector until the environment shifts.”

Individual Company Ratings

• Halliburton Company (NYSE:HAL): Downgraded to Equal Weight from Overweight. Analysts noted significant exposure to global upstream spending and leverage to oil prices. Price target reduced from $43 to $33.
• Oceaneering International (NYSE:OII): Upgraded to Equal Weight from Underweight, recognizing its robust robotics business, high-margin, low-capital expenditure profile, steady project revenue, and potential growth in aerospace and defense spending. Price target raised from $22 to $26.
• Valaris Ltd (NYSE:VAL): Downgraded to Equal Weight from Overweight. Challenges include floaters without contracts, a decision to warm-stack a drillship, and potential dayrate pressure on its fleet. Price target cut from $59 to $49 due to conservative contracting assumptions for 2025 and 2026.

Investment Recommendations

Barclays analysts suggest focusing on selected companies with minimal exposure to upstream spending, which they predict will experience re-rating. This includes:
– TechnipFMC (NYSE:FTI)
– Baker Hughes (NASDAQ:BKR)
– Schlumberger (NYSE:SLB)
– Tenaris (BIT:TENR)
– Transocean (NYSE:RIG)

• Transocean: Upgraded to Overweight from Equal Weight due to a fully contracted deepwater rig fleet through 2026, with discounted dayrates providing a strong earnings foundation.

Analysts anticipate a recovery in offshore contracting by late 2025, driven by new deepwater developments and increased exploration activity.