Earnings Preview: Core Labs (CLB)

Oilfield services provider Core Laboratories N.V. (CLB) is scheduled to report its second quarter 2010 results on Wednesday, July 21, after the closing bell.

The Zacks Consensus Estimate for the to-be-reported quarter is 72 cents per share, compared to the 66 cents per share earned in the year-earlier period.

First Quarter Recap

Core Labs reported profit of 69 cents per share in the first quarter of 2010, a penny above the Zacks Consensus Estimate. The company believed strong performance across the business units helped it to top expectations.

Well Positioned for the Second Quarter

Core Labs’ deep portfolio of proprietary products and services positions it to operate successfully in the current environment of low commodity prices and growing maturity in the global hydrocarbon reserve base.

The company is also expected to benefit from the resumption of international E&P spending (approximately 70% of Core Labs’ revenue comes from markets outside of North America), rapid expansion in its Middle East operations, and strong presence in the emerging shale plays.

Agreement of Analysts

The following table reflects a strong positive agreement among the analysts regarding Core Labs’ outlook. In particular, we see a notable number of estimate revisions over the past 30 days.

Out of 11 analysts covering the stock, 4 have revised upwards their estimates for the second quarter of 2010, while 1 has gone in the opposite direction.

Magnitude of Estimate Revisions

As a result of the analysts revising estimates over the past 30 days, the Zacks Consensus Estimates for the second quarter of 2010 has gone up a penny (from 71 cents to 72 cents). The increase is based on the strengthening North American markets, steady international growth expectations, and rebounding activity levels.

Positive Surprise History

The company has a history of positive earnings surprises, surpassing the Zacks Consensus Estimate in each of the last 4 quarters. Core Labs has performed consistently well during this period with its average earnings surprise being 2.83%. This implies that the company has beaten the Zacks Consensus Estimate by 2.83% over the last four quarters.

Therefore, we will not be surprised if Core Labs reports better-than-expected results yet again, driven by the company’s favorable geographic exposure, strong demand for its fracture diagnostic technologies, and solid client base.

Our Recommendation

We believe that Core Labs’ technology-heavy portfolio of proprietary products and services gives it the opportunity to capitalize on the need to optimize production from new and existing fields. The company remains well positioned in the onshore U.S. region given its strong presence in the emerging shale plays, where activity levels are not affected by the ongoing financial turmoil and commodity-price weakness. Additionally, Core Labs’ global footprint provides for steady growth rates going forward.

These factors account for our Zacks #2 Rank (Buy) rating on the stock over the coming 1–3 months.

CORE LABS NV (CLB): Free Stock Analysis Report
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