Increasing chaos in the Middle East usually brings an oil shock with it – but we also have an incoming second Trump administration, one that is likely to push for an expansion of American domestic oil production.
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How these currents will interact is difficult to predict, but the oil industry experts at JPMorgan have some insights into the situation.
In short, the bank sees likely strength on the exploration and production side of the US oil industry, from a combination of improved efficiencies in both operations and capital expenditures, a boon for oil stocks – but that in turn may lead to headwinds for the oilfield services side.
As the bank’s analyst Arun Jayaram writes, “In 2025, we retain our cautious sector stance on OFS [oilfield services] given the deceleration of capex trends in international and offshore markets and further declines in NAM [North America] spending… The two key culprits for the weakening spending picture are an anticipated loosening in the oil market and declining capital intensity in NAM, which are headwinds for OFS stocks.”
Jayaram goes on to add, “In a more challenging macro environment, we think companies that can demonstrate the most earnings resiliency are best positioned to deliver alpha. As such, we continue to favor late cycle exposure, key enablers of efficiency gains, and companies levered to capex trends less tied to rig activity.”
Following this line, Jayaram goes on to pinpoint two oilfield services stocks that are poised to outperform, even with the current macro trends. According to the TipRanks database, both are rated as Buys and boast double-digit upside potential. Let’s take a closer look.
Baker Hughes Company(BKR)
The first stock on our list, Baker Hughes, got its start over a century ago and today is a leader in the oilfield services sector. The company works with advanced industrial technology, applying it to the development and deployment of the specialized systems used in maximizing operational production and efficiency in the oil and gas industry. That’s a mouthful, but what it boils down to is simple: Baker Hughes brings tech savvy to the oil wells, providing solutions to develop clean, reliable energy. The company is particularly well-known for its contributions to the liquefied natural gas (LNG) industry, where it has more than 30 years’ experience achieving success.
By the numbers, Baker Hughes’ operations are impressive. The company employs more than 58,000 people across 120-plus countries, a truly global footprint in an essential global industry. In addition, the company’s commitment to safety is clearly visible – in 2023, Baker Hughes had 199 ‘perfect HSE days,’ that is, days on which every worker went home safely. That’s an impressive achievement in an industry known for its dangerous reputation.
While Baker Hughes has built itself into a leader of its industry, it is not just sitting still. The company is working to integrate new technologies into the oilfield services that it offers. In one example of this, the company has partnered with C3 AI to develop the BHC3 AI platform, designed to bring the advantages of AI and machine learning to oil and gas operations. The end goal is to make predictive solutions possible, and to promote a digital transformation in oil and gas.
While Baker Hughes’ core businesses are its oilfield services and its LNG solutions, the company also has segments dealing with industrial technology and solutions, energy transition, and remote operation solutions.
In its last quarterly report, covering 3Q24, Baker Hughes showed a quarterly revenue total of $6.9 billion. This was up 4% year-over-year, although it missed the forecast by $300 million. Baker Hughes’ bottom line came to 67 cents per share, by non-GAAP measures; this was 6 cents per share better than had been anticipated.
Jayaram, covering this stock for JPM, notes that the effects of industry headwinds are clear – but that Baker Hughes is well-positioned to overcome them. He writes, “BKR is not immune from OFS spending headwinds, but is benefitting from secular growth trends (LNG, gas infrastructure, new energy) as well as a highly coveted recurring earnings stream in its IET [industrial energy technology] segment. The company is levered to secular growth potential in Gas Tech Services (GTS) given its rising install base… Given this favorable mix, pricing tailwinds, and the potential for upgrades, we think BKR’s GTS segment could generate MSD growth through 2030 at attractive margins.”
Along with these comments, the JPM sector expert gives BKR an Overweight (i.e. Buy) rating and bumps the price target up from $43 to $50. The new price target implies a one-year upside potential of 21%. (To watch Jayaram’s track record, click here)
Overall, BKR shares have a Strong Buy consensus rating, based on 19 recent reviews that include 17 to Buy and 1 each to Hold and Sell. The shares are currently trading for $41.31 and their $45.53 average target price suggests the stock will increase by 10% over the coming year. (See BKR stock forecast)
National Energy Services Reunited(NESR)
The next stock we’ll look at, National Energy Services Reunited, is another international oilfield services firm – but this one operates mainly in North Africa, the Middle East, India, and Indonesia. In all, NESR works with more than 25 exploration and production companies in 16 countries, and employs over 6,000 people. The company is relatively new, founded in 2017, and aims to become the leader in oilfield services in the North Africa/Middle East and Asia-Pacific regions. That’s a lofty goal, but one that NESR has a true chance of achieving. The company’s services for the oil and gas industry are comprehensive, and include vital production services such as hydraulic fracturing, well completions, filtration, pumping, and nitrogen services. On the drilling side, the company provides both equipment and services, including downhole tools, directional drilling, fishing tools, testing services, drilling and completion fluids, and rig services.
These, and more, are the vital tools and services needed in the oil and gas industry to complete wells, initiate drilling, and maintain steady hydrocarbon production. NESR provides this specialized engineering knowledge, allowing the E&P companies to focus on their own tasks. Together, both sides develop the energy that drives the world. To bring these services to the oilfield, NESR works with a range of strategic partners that offer tech solutions in energy, clean water, pressure control, and more.
Looking at the financial results, we see that NESR reported $336.2 million in revenue for 3Q24, a figure that was up 12% from the prior year period and came in just over $9 million above expectations. The company’s earnings, reported as a non-GAAP EPS of 31 cents per share, was 8 cents better than expected and 10 cents better than the year-ago result.
For JPM’s Jayaram, this stock offers investors a unique opportunity, a way to play the oilfield services industry with a regional tilt. He says of the stock, “NESR’s distinct pure-play geographic leverage to the MENA/APAC markets and well-rounded portfolio makes the company an intriguing way to play the international services market where activity trends are decelerating. We think NESR is well positioned to outpace incumbent service providers growth in the region over coming quarters. Additionally, we think the valuation looks compelling relative to its NAM onshore service peers… NESR shares currently trade at ~3.5x consensus EBITDA, which represents a ~15% discount to the ~4x multiple for its NAM onshore peers.”
Jayaram’s stance backs up his Overweight (i.e. Buy) rating here, and his $13 price target points toward a one-year upside of 46%.
The stock holds a Moderate Buy consensus rating, based on 2 recent positive analyst reviews. The shares’ $8.91 selling price and $14 average price target together imply a 57% upside for the next 12 months. (See NESR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
