By Sarfaraz A. Khan
Few oil and gas service companies can match RPC, Inc's (NYSE:RES) track record in terms of profitability, return on capital and free cash flow yields. However, with the slump in oil prices and pressure from competitors, the company's earnings and margins are set to fall substantially. According to the latest consensus data from Thomson Reuters, RPC's earnings per share could drop by more than 80% while its EBIT margin could shrink by more than 50% to 6.4% in 2015 from last year.
The significant decline in oil prices since mid-2014 and little support from natural gas have dampened the future prospects of all oil and gas service companies. Hydrocarbon producers have slashed their capital budgets and drilling activity has come down sharply. The latest data from Baker Hughes (NYSE:BHI) shows another drop in the total number of rigs in the U.S. to 1,069 - lowest in more than five years - while the number of oil rigs fell to 825 -lowest in four years. Furthermore, drilling activity will remain subdued in the near future due to the persistent weakness in oil prices, which is bad news for all oil and gas service stocks.