Core Labs is out of gas

 

Core Laboratories N.V. (CLB), founded in 1936 and based in Amsterdam, is a provider of reservoir descriptions, production improvements and reservoir management services within the petroleum sector in the United States, Canada and internationally. It has metaphorically started to run dry. CLB now is a short-selling target rather than a sector leader due to its decrease in share value and subpar growth. 

CLB operates via three segments: Reservoir description, production enhancement and reservoir management. All three segments are expressly targeted to crude oil, gas and petroleum refinement; subsequently conforming to one specific commodity, independent of CLB’s internal investments. Such conformity is illustrated via its reservoir description segment analyzing petroleum reservoir rock, fluid and gas samples. Their production enhancement segment includes services and products relating to reservoir well completions, perforations, stimulations and production; and their reservoir management segment integrating the reservoir and production enhancement services to increase the production and improve recovery of oil and gas from its client’s reservoirs. CLB markets and provides its services via its sales representatives, technical seminars, trade shows, media advertising and third-party distributors. 

CLB’s specific business operation is intrinsically and extrinsically dependent on one sector, putting the company in a precarious position. The reduction of U.S. drilling and related activities has had a direct effect on CLB. This is evidenced by CLB’s last earnings report where shares have declined 5% from its prior valuation within a substantial 30- to 40-day period. Additionally, CLB’s Q4 2016 adjusted diluted earnings of 41¢ per share was substantially below its year prior quarter of 65¢ per share totaling CLB’s revenue of $150 million. This accounted for a 20.8% decline from its prior-year quarter of $180 million. Its reservoir segment reported an operating income of 17.3 million, its production enhancement operating income was 2.9 million, and its reservoir management suffered a 1.3 million loss. 

CLB’s future guidance for Q1 2017 is equally indicative of potential decline, based on expectation earnings of 42¢ per share on revenue of $150 million. This subpar growth rate and value places CLB in the 20% lower quartile for investment strategies. While, some believe this is an opportunity to either hold or buy, the signals point toward a prime short candidate. 

CLB will also be affected by external factors that will remain volatile. These include the overall global economic outlook, potential OPEC taxation and the continued technological advances in alternative energy production. As a result, any immediate or near-term bounce in CLB’s stock performance and perceived growth in earnings should be questioned in light of these precarious factors and seen as a shorting opportunity. 

Technical picture

CLB has been in a declining mode since setting a high of $214 in April 2014. Continued declines with plunges brought the price to a low of $92.75 in January 2015. The election bounce reversed the share price above its 50- and 200-day moving average. The rebound continued to $125, but failed to take out the 2016 high.
A downtrend established of the high has not been broken by early April rebound to $117 (see “CLB short energy”). The prospects of energy and soil services sectors, may invite more short-sellers in light of such variance. The retesting of its previous low of $96.30 may be the expected.