Wall Street works in a funny way. The street is constantly reacting to events. The events range from earnings, economic data, the price of oil, a slowdown in housing, etc. So when one industry gets sold off, others affected by it follow suit. For example, in 2006, the homebuilders sold off as data indicated houses were not selling as quickly as they once were. Soon after, suppliers, hardware stores, construction machinery, cement, and other sectors followed suit. After I wrote the article on Conoco Phillips, I looked around if anything interesting could be going on in other oil sectors and I was not disappointed.<!--more--> The company that I found and like is BJ Services (BJS). Here’s the company profile from Yahoo Finance:BJ Services Company provides pressure pumping and other oilfield services for the petroleum industry worldwide. Its pressure pumping services consist of cementing and stimulation services used in the completion of new oil and natural gas wells, and in remedial work on existing wells both onshore and offshore. The cementing services comprise blending high-grade cement and water with various solid and liquid additives to create a cement slurry that is pumped into a well between the casing and the wellbore; and stimulation services include fracturing, acidizing, sand control, nitrogen services, coiled tubing, and service tools. The company also offers other oilfield services, including completion tools, completion fluids, casing and tubular services, and production chemical services, as well as precommissioning, maintenance, and turnaround services in the pipeline and process business, including pipeline inspection. Its customers include major and independent oil and natural gas producing companies, as well as national oil companies. BJ Services was founded in 1872 and is based in Houston, Texas.
The Oil Equipment and Services Index is down 7.61% for the past month and 6.23% for the past 6 months. Although the industry is not screaming sell off, it is telling me that Wall Street is correlating the industry with the price of oil.
The company’s balance sheet is what I consider good. It has a 2.2-1 total assets to total liabilities ratio and a 1.5-1 current assets to current liabilities ratio. Revenues have more than doubled since 2003 from 2.1 Billion to 4.3 billion. At the same time, earnings after taxes have grown tremendously from 188 million in 2003 to 804 million in 2006.In addition, the company also is producing 372 million of free cash flow. The stock currently trades at 10.5 times earnings, well below its 5 year average of 23. In comparison the S&P 500 trades at 21 times earnings and the industry at 17 times earnings. At 3.6 times book value, it trades below the industry’s book value of 6.9 and the S&P 500’s 4.2. Its Return On Assets is a healthy 22.17% (ttm) well above it’s 5 year average of 12%. In addition, its Return on Equity is 35.10%, also above its 5 year average of 19%.
The stock price is currently trading near its 52 week low and will go up if oil prices start picking up. In my opinion, BJ’s is worth at least $40. The company is expected to announce results for its first quarter on January 25 and will be interesting how it does. I will be adding BJS to the WSL Portfolio.
Disclaimer: I do not own shares of BJS
$26.7 (01/22/07)
