CLB Core Laboratories Inc

We are maintaining a Neutral rating on Core Laboratories (CLB), based on its package of top-class products and services, strong international exposure and healthy financial profile, partially offset by gas/oil price volatility and emergence of advanced technologies.

Core Labs exhibits an array of proprietary products and services that position it to operate successfully in the current environment of low commodity prices. Moreover, the company’s strong presence in the emerging shale plays and its global footprint, including markets in the Middle East, Asia Pacific, and East and West Africa, would facilitate steady growth rates going forward.

During the fourth quarter of 2011, Core Labs performed impressively with earnings per share, excluding special items, of $1.09, beating the Zacks Consensus Estimate by a penny. Total quarterly revenue of $243.8 million was also in line with the Zacks Consensus Estimate. The company’s results were backed by higher activities in the overseas regions along with strong oil-field operations in North America.

Additionally, Core Labs’ focus on various crude oil projects, resulting in a revenue mix of approximately 80% oil and 20% natural gas (against the previous 70–30% mix). This strategy aided the company in posting strong revenue growth in the reservoir description segment during the fourth quarter. Coupled with the development of advanced technologies, Core Labs is expected to sustain this growth momentum over the next few quarters.

However, Core Labs’ has its operations spread across the globe. Consequently, it remains vulnerable to risks such as embargoes and/or expropriation of assets, exchange rate risks, terrorism and political/civil sentiment in critical countries like Iran, Iraq, Nigeria and Venezuela.

The company is continuously engaged in developing and acquiring essential products and technologies that drive its operational performance and growth. If its technologies and/or products become obsolete or cannot be brought to market in a timely and competitive manner, it could face severe operational and financial dilemmas.

Considering, these aspects we recommend investors to hold the stock at current levels. Core Labs, which competes with other players such as Baker Hughes Incorporated (BHI) and Halliburton Company (HAL), currently retains a Zacks #3 Rank, translating into a short-term Hold rating.

 
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