EUR 850.00 For Business Accounts Only

Morningstar | Slightly Lowering Core Lab FVE on Delayed Reservoir Description Recovery. See Updated Analyst Note from 26 Nov 2018

We're slightly lowering our fair value estimate for Core Laboratories to $77 (EUR 68) per share from $80 (EUR 68) owing to a slightly more pessimistic near-term outlook for the company. Our wide-moat rating remains in place; Core Labs will continue to generate the highest returns on capital in our oilfield service coverage.

The more pessimistic near-term outlook is concentrated in the company's reservoir description segment, where results in 2018 have played out below our expectations. We had been hoping (in line with management's guidance a year ago) that the uptick in large, international oil and gas project approvals in 2017 would lead to an increase in reservoir description revenue in 2018, but instead revenue has been flat year-over-year. We're maintaining our midcycle (2022) expectations for the segment, but we've decreased our near-term expectations.

Core Labs' shares have plummeted over 32% since the beginning of October, putting its shares finally in line with our fair value and long-held bearish view on the company. Our bearish thesis has centered on a view that Core Labs will continue to generate very high returns on capital, but nevertheless growth expectations will fall far short of the market's erstwhile very ambitious expectations. It remains unclear whether the market is permanently recalibrating its views regarding Core Labs or overreacting to purely near-term developments. For now, however, our long-held bearish view is playing out for Core Labs.