Core Labs Acknowledges Challenging Future

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Too bad Core Labs (NYSE: CLB) can't use one of its fracturing charges to break up the hydrocarbon haze surrounding the future of the oil services industry. Core rounded out 2008 with yet another record-setting quarter, but management's outlook beyond the first quarter of 2009 basically amounted to "We'll know more just as soon as we know more."

Investors who read my previous piece on Core Labs know that I was hesitant about the company's 2009 prospects, and while operating details provided on the conference call make a case for Core's ability to hold up against market headwinds, growth remains a question.

Let's look at some of the reasons for existing shareholders to feel less anxious.

Weighing the pros and cons
For all the talk about Core's exposure to U.S. shale gas plays (and I've definitely contributed to that conversation), it was interesting to learn on the call that this sector represents only 10% of the company's total revenue. Furthermore, Core derives 70% of its revenue from outside the United States, and its top five customers are all integrated majors -- exactly the sort of deep pockets investors like to see. Rounding out this abridged list of likely positives, Core has slashed outstanding debt and guided 2009 capital expenditures down 35% from year ago levels.

Nonetheless, management admits that 2009 will be a challenge. In fact, when asked by a caller about its assumptions for the 2009 horizontal rig count (opposed to the vertical rigs mostly used in conventional drilling), management stated that it didn't have a clue. We do know that management has estimated that first-quarter 2009 earnings per share will post a 20%-26% decline from the recently completed quarter. 

Even though Core's forward P/E of 11 (based on 2010 estimates) is right between that of peers Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL), it seems risky to rely on outsider analyst forecasts when management won't venture a guess.

Core Labs has all the hallmarks of an excellently run company, but in order for its stock to be an equally appealing buy, investors may do well to wait for some combination of energy-market visibility and share-price decline. In the meantime, greater near-term visibility and potentially better returns might be found in well-hedged, dividend-paying E&P companies. On that note, Linn Energy (Nasdaq: LINE) immediately comes to mind.

More Foolish perspective on oil services companies:

• Here Comes the Oil-Services Slump
• Oilfield Services: Buy, Sell, or Waffle?
• Solid Quarter, Hazy Future for Baker Hughes