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Baker Hughes Incorporated (BHI), Nabors Industries Ltd. (NBR), And How To Find Value in Oil Service Stocks

Earnings Analysis: Baker Hughes Inc. (NYSE:BHI)I’m in this business to make money, I am also a disciple of Benjamin Graham, so naturally I am always on the lookout for stocks that offer deep value, and right now, some of the best value I can find is in oil services stocks, which have been sold off recently due to the falling price of oil.

In practice, the panic selling that has been spurred by the recent slump in commodities will have almost no material effect on oil service companies. The demand for their products and services will continue to remain high, no matter what the price of oil. The planet will always need oil and the price will never be compressed enough for companies to stop searching for the black gold.

So where is the value?

There are four companies that offer potential for value investing right now. Drilling companies — Rowan Companies PLC (NYSE:RDC) and Nabors Industries Ltd. (NYSE:NBR) and equipment companies, National-Oilwell Varco, Inc. (NYSE:NOV) and Baker Hughes Incorporated (NYSE:BHI).

These four are all currently trading below, or around book value:

Company P/B
Rowan Companies PLC (NYSE:RDC) 0.8
Nabors 0.7
National-Oilwell Varco, Inc. (NYSE:NOV) 1.3
Baker Hughes 1.4

Indeed, both Rowan and Nabors Industries Ltd. (NYSE:NBR) are currently trading for less than the cost of their drilling fleets.

But do these numbers stack up; how secure are the balance sheets of these companies, and what is the true tangible asset value per share?

Company Current Assets Current Liabilities Tangible Assets Total Liabilities
Rowan $1,550 $294 $7,860 $3,330

Figures in $US millions

Rowan Companies PLC (NYSE:RDC) has a solid balance sheet with a current ratio of 5. The company has plenty of short term liquidity. Indeed, even over the longer-term, the company appears financially strong as total assets cover total liabilities twice. Additionally, $1 billion of the company’s current assets is actually cash.

These figures give the company a book value of $36.4 per share and a cash value per share of $8.2.

Company Current Assets Current Liabilities Tangible Assets Total Liabilities
Nabors $3,130 $1,130 $12,200 $6,630

Figures in $US millions

Nabors Industries Ltd. (NYSE:NBR) has a strong current ratio of 2.7, total assets cover total liabilities slightly less than twice, indicating a book value per share of $20.7 and a cash value per share of $2.7 – currently not offering as much value as Rowan Companies PLC (NYSE:RDC).

Furthermore, unlike Rowan, which has net debt of around $1 billion (1.9x EBITDA), Nabors Industries Ltd. (NYSE:NBR) has a net debt pile of $4 billion (2.2 x EBITDA).

Company Current Assets Current Liabilities Tangible Assets Total Liabilities
National Oilwell 15,680 5,650 19,560 11,130

Figures in $US millions

So far, as value goes, National-Oilwell Varco, Inc. (NYSE:NOV) has the best balance sheet. With a current ratio of 2.8, National Oilwell is almost able to cover all of its liabilities, both current and long-term, with its current assets. With a current ratio of nearly 3 and almost no debt, the company has the strongest balance sheet in the group.

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