Core Laboratories N.V.

CLB Details

Core Laboratories N.V. (NYSE: CLB) is an oil-service company that performs core and reservoir analysis to enable oil and gas companies to increase production and recovery from their reservoirs. Its operating segments are 1) Reservoir Description, which consists of the characterization of petroleum reservoir rock, fluid, and gas samples. It provides analytical and field services to characterize the properties of crude oil and petroleum products to the oil and gas industry, and 2) Production Enhancement, which includes products and services relating to reservoir well completions, perforations, stimulations, and production. It provides integrated diagnostic services to evaluate the effectiveness of well completions.

Share Repurchases: During the period beginning August 03, 2021, and ending August 12, 2021, CLB completed the repurchases of 65,000 of its common shares, at an average price of USD 30.90 per share. Similarly, between August 19, 2021, and August 30, 2021, the company bought back 10,000 common shares at an average repurchase price of USD 24.67 per share.

Q2FY21 Results: The company reported YoY growth of 2.60% in revenue to USD 118.75 million in Q2FY21 (ended June 30, 2021) compared to USD 115.74 million in Q2FY20. The Reservoir Description, which accounted for 65.90% of the revenue in Q2FY21, reported a YoY decline of 11.52%, whereas the Production Enhancement segment improved by 48.36% YoY. CLB reported a net income of USD 8.06 million in Q2FY21 vs. a net loss of USD 5.72 million in Q2FY20. As of June 30, 2021, the company had cash & cash equivalents of USD 33.62 million and total debt of USD 208.31 million.

Key Risks:  CLB conducts its business in many currencies other than USD, making it vulnerable to exchange rate fluctuations. Therefore, any unfavorable movement in the exchange rates could harm the company's financials. In addition, CLB depends on a limited number of third-party suppliers and vendors for some of its product lines. Hence, the loss of any of its key suppliers or alteration in the contractual relationships with these third parties could adversely impact its operations.

Outlook: In Q3FY21, CLB expects to generate revenue in the range of USD 122.0 – 126.0 million, with operating income to the tune of USD 14.0 – 15.0 million, thus realizing an operating margin of ~12% (with an incremental margin (ex-items) of 20% – 25%). EPS is estimated to be in the range of USD 0.19 – 0.21.  

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CLB Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CLB's stock price decreased 24.40% in the past three months and is currently leaning towards the lower band of its 52-week range of USD 13.43 to USD 49.87. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 57.84. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 36.26. Considering the correction in the stock price, strong bottom-line performance, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 29.53, up 1.76% as of September 28, 2021, 11:03 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.