Morgan Stanley downgrades Hunting, sees flat US rig count
Analysts at Morgan Stanley downgraded their recommendation on shares of Hunting and cut their target price, telling clients consensus was too upbeat about the prospects for activity in the oilfield services space and hence the company's top-line growth.
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They also believed the stock's relative valuation had become too rich.
Supply dynamics in the oil market had deteriorated and optimism around the US rig count had toned down as a result.
So while consensus was anticipating 25% growth in the outfit's 2018 revenues, Morgan Stanley was expecting something more on the order of between 12% to 13% - with the rig count almost flat at then current levels.
Hunting had already de-rated during the recent sell-off since mid-April, with its stock down by roughly 9%.
Yet changing hands at a 2018 EV/EBITDA multiple of 11.0, the valuation was "too demanding, leaving little room for error".
Morgan Stanley lowered its recommendation from cut its target price from 'equalweight' to 'underweight' and slashed its target price from 550.0p to 440.0p.
"Given past stock and sector performance, whereby multiple re-rating precedes earnings downgrades, we think the risk is to the downside."