As Hunting plc Slides, Are Petrofac Limited Or John Wood Group PLC A Safer Buy?

Shares in oil services provider Hunting (LSE: HTG) fell this morning, after the firm said that current City forecasts for the firm’s 2015 performance should not be relied upon.

Hunting’s view is that conditions are changing so fast in the oil industry that analysts can’t update their forecasts quickly enough. Neither, it seems, can Hunting itself — the firm said today that due to a lack of information, it would not provide financial guidance for 2015 until later this year.

Shares in Hunting have now fallen by 46% over the last six months, yet those of Petrofac (LSE: PFC) have only fallen by 31%, while John Wood Group (LSE: WG) is only down by 18%. Why?

US exposure

One problem for Hunting is that much of its business in is North America, and services the US shale market.

A second problem is that Hunting is a manufacturer of parts, not just a services operation, so the firm may find it difficult to keep its US manufacturing facilities busy.

Are Petrofac or Wood Group a safer buy?

Hunting’s market cap is around £700m — much smaller than Wood Group (£2,300m) or Petrofac (£2,700m). In my view, Petrofac and Wood Group’s greater size and long-term outlooks may make it easier for them ride out a period of weak earnings.

A second consideration is diversity: Petrofac has a strong presence in the Middle East, where it does a lot of work for some of the state-owned oil companies. For example, a consortium led by Petrofac was recently awarded a new $4bn project in Kuwait.

Wood Group also benefits from global diversity, and much of its work is performed under large, long-term contracts which will be protected from short-term cuts.

Clear outlook

Although the 2015 outlook for Hunting is uncertain, both Wood Group and Petrofac look attractively priced, trading on 2015 forecast P/E ratings of 11 and 9, respectively.

In terms of dividend income, Petrofac offers a generous 5% prospective yield that carries a risk of a small cut, according to the latest forecasts, while Wood Group’s more modest 3% prospective yield is considered safe and is expected to rise this year.

In my view, both Petrofac and Wood Group are potentially attractive buys.

Although I think the outlook for Hunting is too uncertain to make the firm a sensible buy, it may be worth noting that Hunting could soon become an attractive takeover target for a larger firm, seeking to consolidate its US operations.

If you're thinking about buying shares in any of these companies, I'd urge you to do your own research before hitting the buy button.

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Roland Head owns shares in Petrofac. The Motley Fool UK owns shares of Petrofac. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.