Energy services sector downgraded at Barclays amid bearish oil macro setting

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 starting 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.”

Among individual energy names, Barclays downgraded Halliburton Company (NYSE:HAL ) to Equal Weight from Overweight, with Barclays noting the company's significant exposure to global upstream spending and its leverage to oil prices.

The firm also reduced Halliburton's price target to $33 from $43.

Conversely, Oceaneering International (NYSE:OII ) received an upgrade to Equal Weight from Underweight, as analysts acknowledged a misstep in its previous rating.

The firm recognized Oceaneering's robust robotics business and high-margin, low-capital expenditure profile, alongside steady project revenue and potential growth in aerospace and defense spending.

Barclays raised Oceaneering's price target to $26 from $22.

Valaris Ltd (NYSE:VAL ), meanwhile, was also downgraded to Equal Weight from Overweight. Barclays pointed to challenges including the company's floaters without contracts, a decision to warm-stack a drillship, and potential dayrate pressure on its fleet of jackups.

The investment bank also cut its Valaris price target to $49 from $59, based on more conservative contracting assumptions for 2025 and 2026, and a rig-by-rig discounted cash flow model assuming mid-cycle dayrates.

Barclays analysts believe investors should focus on select companies with minimal exposure to upstream spending, which they expect to experience re-rating. These include TechnipFMC (NYSE:FTI ), Baker Hughes (NASDAQ:BKR ), Schlumberger (NYSE:SLB ), Tenaris (BIT:TENR ), and Transocean (NYSE:RIG ).

Transocean was upgraded to Overweight from Equal Weight, citing the company’s fully contracted deepwater rig fleet through 2026, with discounted dayrates providing a strong earnings foundation.

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

Source: Investing.com