Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Core Laboratories (NYSE:CLB) soared as much as 10% by mid-afternoon on Wednesday. Fueling the surge was the company's first quarter earnings, which beat analysts muted estimates. It also didn't hurt that oil prices were up nearly 3%, sending oil stocks higher.
So what: At first glance Core Labs earnings were actually pretty awful. Not only did revenue plunge 19%, but the company whiffed on its own guidance. Further, it sees that weakness continuing in the second quarter as it sees earnings and revenue falling even further.
However, investors saw the glass half full. Core Labs did manage to beat analysts' estimates by a penny and it delivered record free cash flow. More importantly, the company noted in its press release that it sees oil and gas drilling activity flattening in the third and fourth quarters before a V-shaped recovery starts in the first quarter of next year. That outlook certainly gave investors reason to cheer, and bid up Core Labs' stock.
Now what: If Core Labs is right, then a bottom is forming in the oil market and activity levels should begin to stabilize later this year. That's about when it sees oil supplies dropping, which will lead to higher oil prices. This is all oil companies need to incentivize them to start drilling lots of new wells.