Should You Buy Petrofac Limited And The Weir Group PLC After Both Firms Beat Expectations?

Oil services firm Petrofac (LSE: PFC) issued its full-year results for 2014 on Wednesday. The firm’s shares have edged 5% higher in trading so far today, suggesting investors were pleased with the firm’s outlook.

Petrofac looks good

The reality isn’t bad, either: Petrofac’s post-tax profits of $581m were in-line with recent guidance, and slightly ahead of the latest consensus forecasts for a net profit of $563m.

Petrofac’s dividend was left unchanged at 65.8 cents per share, again beating forecasts, which had been suggesting a 5% cut to 63 cents per share.

What gives me confidence, as a Petrofac shareholder, is the size and nature of the firm’s order book. Petrofac’s order backlog rose to a near year-end record of $18.9bn last year, and the firm has already booked £3.5bn of new orders in 2015.

Many of Petrofac’s customers are state-owned oil companies in the Middle East, with giant, low-cost oil fields. Projects for clients such as these are likely to go ahead regardless of the price of oil, giving Petrofac excellent medium-term revenue visibility.

Although the bargain basement opportunity to buy Petrofac at 600p has now passed, I believe the firm is still an attractive buy at 800p, which gives a 2015 forecast P/E of 9, and a prospective yield of around 5%.

Weir Group wobbles

Shares in pumping specialist The Weir Group (LSE: WEIR) have fallen 10% in trading so far this morning, following the publication of the firm’s 2014 results.

There was nothing particularly grim in the figures — indeed, like Petrofac, Weir’s net profit of £303m was marginally ahead of consensus forecasts, which had been for £296m. Weir also managed a 5% dividend hike, taking the payout to 44p per share, as expected.

The firm’s operating margins only fell by 0.8%, to a still-healthy 18.4%, and cash generated from operations remained strong, at £421m.

However, the outlook for 2015 is challenging. Keith Cochrane, Weir’s chief executive, told investors that the firm would respond “to market conditions as they evolve”, suggesting to me that he believes tougher times lie ahead.

Weir shares are now trading on around 13 times 2015 forecast earnings.

I’m not sure I’d rush to buy at this price, but I wouldn’t sell either — Weir is a high quality business with strong profit margins and a good product. In the long-term, I’m confident that the firm will gradually return to growth.

Spotting oil bargains

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Careful analysis is needed before buying any oil-related stock in today's market.

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