CNBC's Jim Cramer checked out oil services stocks on Wednesday after the sector's major players reported earnings, telling investors why he believes SLB and Halliburton still have room to run.
Cramer said he was bullish on these stocks after their earnings showed strong international business and efficient drilling rigs. Both stocks posted gains in the sessions since their reports, with Halliburton gaining 4.33% and SLB gaining 2.48% through Wednesday's close.
“I think SLB and Halliburton deserve all this upside and more,” Cramer said. “Yes, I think they can continue to rise. Yes, the growth prospects for the oil services industry are better than I thought given the profits, largely thanks to increased activity abroad.”
In its earnings report last week, SLB emerged as a key source of strength in its international business, which the company said had delivered double-digit growth for 10 consecutive quarters. Cramer was also encouraged because SLB increased its dividend by 10%, suggesting management is confident about its future success. Although its cash flow was not as strong as SLB's, Halliburton also reported strong international business and expressed confidence in its ability to monitor production over the next few years.
But Cramer had some concerns about increasing efficiency. He wondered if these oil services companies would become “victims of their own efficiency” and producers would have to buy fewer rigs because each one could produce more oil than in the past. But Halliburton management allayed Cramer's fears.
“Halliburton has stated that they are also extracting more and more money from each well, so at worst it's a wash,” he said. “Furthermore, because they help producers expand and extend the life of individual wells, they make more money and incur fewer costs themselves, resulting in better margins.”