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Profitable year seen ahead for oilfield services sector

It's been a brisk year of activity in the oilfield services sector - and quite a rewarding one for investors holding shares in companies drilling for all that oil and gas. The Philadelphia Oil Service index is up about 23 per cent this year.

Canaccord Genuity analyst John Tasdemir believes activity will keep on humming in 2011, particularly as drilling picks up beyond North America.

The U.S. and Canadian rig counts in 2010 rose 44 per cent and 36 per cent, respectively, from last year, and he believes this "service intensity" will remain elevated in North America due to further growth in unconventional energy supplies. Meanwhile, 2011 should see the long-awaited acceleration in international exploration and development spending, he says.

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Mr. Tasdemir also expects that more capital will start flowing for rig and completion equipment builds in North America and for deepwater and jackup rigs in offshore markets.

Mr. Tasdemir has three top picks to play the sector: multinational Halliburton Co., equipment manufacturer National Oilwell Varco and small-cap directional driller Phoenix Technology Income Fund.

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It's shaping up to be a sunny winter holiday season for Transat A.T. Inc., which this week reported its most profitable quarter in the last six years. Earnings before interest, taxes, depreciation and amortization (EBITDA) of $77.9-million in its fiscal fourth quarter blew past consensus expectations of $53.5-million, driven by strong performance on transatlantic routes. And with the bone-chilling weather from coast to coast, Canadians are expected to have extra motivation to book getaways down south this winter to destinations served by the holiday travel carrier.

Although aggressive competition and excess capacity in the sun destination markets remain a concern, several analysts upgraded their target prices on the stock this morning. Canaccord Genuity's target went to $23.25 from $19.50 and Desjardins Securities raised its to $23.50 from $20. One of the most bullish is TD Newcrest, raising its target by $6 to $29.

TD Newcrest analyst Tim James noted that Transat is trading at 2.8 times fiscal year 2011 EBITDA, well below 4.7 times for its peers. "We consider the valuation to be compelling and continue to recommend that investors acquire Transat shares at current levels," he said.

Related: Transat betting on more winter vacation bookings

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Related: Transat shares seen ascending on surprise jump in tourism

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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