Morgan Stanley previews oilfield service sector - sees higher margins lifting stocks
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Morgan Stanley previewed Q1 results for the oilfield service sector Monday, indicating that risk-reward appeared balanced and that the bank's preference is for international stories, over well-understood North America exposed names. The bank increased price targets across the sector, with an average bump of 29%. 
The sector is up 50% year to date and now back to pre-covid levels. Given recent performance, Morgan Stanley expects further share price appreciation to be driven by a combination of higher upstream spending, and better margin performance. Noting that the latter is much more likely than the former. 
The bank notes that earnings revisions year to date have favored US onshore companies, with Helmerich (HP), NexTier (NEX), Patterson (PTEN), and Tenaris (TS) all seeing double-digit revisions higher so far in 2022. Schlumberger (SLB) and NOV (NOV) have seen estimates cut, in part on Russia exposure. However, Morgan Stanley feels these dynamics are well understood. 
Heading into results, the bank favors Schlumberger (SLB), given the company's exposure to a recovery in international spend. Tenaris (TS) is favored, as capacity restarts in North America paired with leading-edge pricing data point to higher earnings. While Liberty (LBRT) should show progress on newbuild frac fleets. Goldman recently screened for companies with pricing power ahead of Q1 results, and flagged Haliburton (HAL), Baker (BKR) and Schlumberger (SLB) as well positioned.