On Monday, an analyst from Citi downgraded shares of Core Labs from neutral to sell. The analyst also set their price target at $36 per share, still about 15% below the most recent price.
The Citi analyst made that call following an 80% year-to-date run-up in the oilfield service company's stock price. They felt the gain "appears overdone" given that Core trades at one of the lowest free cash flow yields in the oilfield service sector at 3.3% of 2022's projection. That implies it has one of the highest valuation multiples in its peer group. Because of that, Citi thinks there could be some near-term compression in the multiple.
It sees the potential for compression ahead because it believes that Core will post below-consensus second-quarter earnings. That led it to reduce its earnings outlook for Core Labs. Citi now expects the oilfield service company to report $18 million in EBITDA during the second quarter. That's down from its initial view of $20 million and below the analysts' consensus of $19 million. The bank also reduced its 2021 EBITDA forecast from $83 million to $79 million and 2022's outlook from $114 million to $109 million.
Citi believes Core Labs stock has run up too far too fast. That's due partly to its belief that the company won't make as much money over the next 18 months as it initially expected. If Citi is right, shares could have further to fall, especially if Core does report disappointing second-quarter numbers.