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Core Labs Can Keep Drilling Up Strong Earnings

By Dan Caplinger - Apr 15, 2013 at 10:28AM

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Will the energy industry keep being kind to this drilling-services stock?

On Wednesday, Core Labs (CLB -0.73%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

In any boom, there are companies that seek out riches and others that help provide the tools for their searches. Core Labs falls squarely in the latter category, with its analysis of samples of rock and fluid helping oil and gas drillers make the most of their wells. Let's take an early look at what's been happening with Core Labs over the past quarter and what we're likely to see in its quarterly report.

Stats on Core Labs

Analyst EPS Estimate

$1.16

Change From Year-Ago EPS

9.4%

Revenue Estimate

$247.2 million

Change From Year-Ago Revenue

5.6%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Core Labs keep drilling up strong earnings this quarter?
Analysts have gotten a lot more optimistic about Core Labs in recent months, with their earnings calls for the just-ended quarter having risen by $0.04 per share and their full-year 2013 estimates rising by $0.13 per share. The stock has also been gushing higher, rising more than 20% since early January.

Core Labs takes a more scientific approach to the energy industry, providing the sort of focused information that will help producers as they begin to take a more measured approach toward exploration. The company reported record profits and free cash flow in its previous quarter, bolstered by the high costs of drilling and exploration and the huge amounts at stake in finding successful wells.

Moreover, Core Labs has done a good job of staying where business is most lucrative. The company gets 80% of its business from oil, due largely to its relatively high prices. But natural-gas prices are on the rebound, with United States Natural Gas ETF (UNG -0.89%) having risen more than 20% so far this year. If natural gas prices continue to strengthen, then more producers may be willing to pay up for Core's services in that area as well.

One potential thing for Core Labs shareholders to watch out for is the prospect for a takeover bid. With a market cap of $6 billion, Core Labs would be a substantial acquisition for most industry players. But both Schlumberger (SLB 0.66%) and Halliburton (HAL 1.77%) are large enough to at least consider adding Core Labs to their respective oil-services portfolios, and both companies have fairly healthy balance sheets that could arguably withstand taking on more debt for a buyout.

In Core Labs' earnings this quarter, the first thing you should focus on is whether the company can sustain its fast pace of growth. At the stock's current high valuation, Core Labs needs to demonstrate its ability to convince more buyers that its services add value and lead to greater profits. If it can do so, then Core Labs has plenty of opportunity to deliver on its growth promise.

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Stocks Mentioned

Core Laboratories N.V. Stock Quote
Core Laboratories N.V.
CLB
$24.52 (-0.73%) $0.18
Schlumberger Limited Stock Quote
Schlumberger Limited
SLB
$41.12 (0.66%) $0.27
Halliburton Company Stock Quote
Halliburton Company
HAL
$36.70 (1.77%) $0.64
United States Natural Gas Fund, LP Stock Quote
United States Natural Gas Fund, LP
UNG
$27.73 (-0.89%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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