Shares of oil services company C&J Energy Services (NYSE:CJ) gained 15.9% in May, which is a bit surprising when you consider that almost every other smaller oil services company suffered heavy losses this past month. It seems that the most significant factor behind this gain was the company restructuring one of its credit facilities.
Let's get one thing straight: The expectations for C&J are low. This is a company the recently re-emerged from Chapter 11 bankruptcy after doing a $1.4 billion debt-for-equity swap with its creditors.
Two events fueled the recent rally. The first came on May 4, when the company announced it had restarted and amended a credit facility, raising the ceiling to $200 million and extending the maturity to 2022. This looks like a sign of confidence on the part of the lender that the company will be able pay it back, especially since it wiped out all its long-term debt through bankruptcy.
Then, on May 9, C&J announced its first quarterly results since reemerging from bankruptcy. Revenue results were better than expected, but the bottom line suffered because of higher costs. This is quite a common theme among oil services companies lately, because they are all scrambling to reactivate idle equipment to meet rising customer demand.
It's encouraging that C&J was able to negotiate a bankruptcy deal that cleared it of all long-term debt. That said, this is still a company that provides rather basic oil services such as well stimulation and completion, which are largely becoming commoditized. Even the largest players in this industry are struggling to generate decent returns from these kinds of services, so a smaller company like C&J that lacks the economies of scale is going to get hit even harder. Even though there has been some positive news lately, this looks like a stock that investors should avoid.