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Why Oil States International Stock Jumped Another 13% This Morning

By Reuben Gregg Brewer – Jun 3, 2020 at 10:49AM

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After a big day on June 2, Oil States International continued to gain ground in early trading on June 3. Here's why.

What happened

Shares of energy services company Oil States International (OIS 4.76%) opened the day sharply higher on June 3, gaining 13% by 10 a.m. EDT. That follows on notable gains in the previous trading day. In fact, over the past five days, the stock is up over 40%, with almost all of that gain coming in just the last two sessions.

So what

The first thing that's helping push Oil States' stock higher is that oil prices have been relatively strong the last week or so. Although there's still a long way to go before the supply/demand imbalance in the energy sector is corrected, there appears to be progress being made. Eventually, that should lead to higher oil and natural gas prices and increased demand for the types of products and services that Oil States offers the industry.   

Two workers stand in front of an oil well.

Image source: Getty Images.

The next bit of news is more specific: Oil States International provided an updated investor presentation for June. In it, the company highlights its diversified business, the efforts it is taking to cut costs, and the strength of its balance sheet. That last piece is pretty important today, since the downturn in the energy market has been fairly severe, ultimately pushing many energy names into bankruptcy court. Notably, Oil States estimates that its cash cost of debt in 2020 will be roughly $7 million. It has around $132 million in liquidity, with $24 million of that in cash. It appears that Oil States has ample financial leeway to survive the current industry headwinds.   

Also worth highlighting is that the company's offshore division, which makes up around 40% of revenue, had a solid first quarter. Specifically, it inked enough new deals to offset the work it completed. And the division's backlog is actually up 50% from the end of 2018. The company's onshore businesses are likely to face more difficult times in the near term, but all of Oil States' business isn't really struggling.   

Now what

Investors appear to have been pleased with the update Oil States International provided. That makes sense, but there's still a long way to go before the global energy market is back to a normal state. Expect more volatility ahead for this relatively small ($360 million market cap) energy services company.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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