3 Oilfield Equipment Stocks That Can Thrive Amid Industry Headwinds

industry.

Companies striving to navigate these industry challenges include NOV Inc.

, Oil States International, Inc.

and Natural Gas Services Group, Inc.

.

About the Industry

The Zacks Oil and Gas - Mechanical and Equipment industry comprises companies that provide necessary oilfield equipment – production machinery, pumps, valves and several other drilling appliances like rig components – to exploration and production companies. These help upstream energy players extract crude oil and natural gas from fields, both onshore and offshore. Hence, the well-being of oilfield equipment businesses is positively correlated to expenditures by upstream companies. These companies receive deals from integrated energy firms and independent as well as national oil and gas companies. Oilfield equipment providers also design, manufacture, engineer and install products used to treat and process crude oil, natural gas and others. Their products comprise gadgets and instruments for gas compression packages and water treatment works.

What's Shaping the Future of the Oil & Gas Equipment Industry?

Conservative Capital Spending by Upstream Players: Exploration and production companies are becoming more conservative in their capital expenditures for upstream operations. This shift is driven by shareholders who want these companies to prioritize returning capital over increasing spending on production. This trend is likely to diminish demand for drilling and production equipment.

Lower Yield Than Sector: The composite stocks belonging to the industry have consistently been generating lower dividend yield than the oil energy sector over the past five years.

Middle East Disruption Remains a Major Risk: The industry’s exposure to the Middle East creates a meaningful earnings risk. Regional instability has disrupted offshore activity, postponed customer work and increased the cost and complexity of transporting equipment and spare parts. A slower-than-expected recovery in the region could therefore weigh on revenues, raise operating expenses and pressure profitability across affected companies.

Zacks Industry Rank Indicates Gloomy Prospects

The Zacks Oil and Gas - Mechanical and Equipment is a 12-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #153, which places it in the bottom 38% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Surpasses Sector & S&P 500

The Zacks Oil and Gas - Mechanical and Equipment industry has outperformed the broader Zacks Oil - Energy sector and the Zacks S&P 500 composite over the past year.

The industry has soared 40% in the past year compared with the broader sector’s increase of 27.3% and the S&P 500’s 17.9% improvement.

One-Year Price Performance

Industry's Current Valuation

Since oilfield equipment providers are debt-laden, valuing them based on the EV/EBITDA (Enterprise Value/Earnings before Interest, Tax, Depreciation and Amortization) ratio makes sense. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.

On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 7.65X, lower than the S&P 500’s 18.05X. However, it is higher than the sector’s trailing 12-month EV/EBITDA of 6.74X.

Over the past five years, the industry has traded as high as 26.73X and as low as 5.00X, with a median of 9.55X.

Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

3 Oil & Gas Equipment Stocks Combating Industry Challenges

Natural Gas Services: The United States is sending more natural gas overseas as Liquefied Natural Gas (LNG). To do this, gas needs to travel through pipelines to coastal export terminals. This creates higher demand for Natural Gas Services’ compression equipment to push the gas through the pipelines. So, as more LNG is exported and more pipelines are built, companies like NGS, sporting a Zacks Rank #1 (Strong Buy), benefit by renting out more of their compression machines. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: NGS

NOV: Management expects customer orders to improve in the second half of 2026 and grow even more in 2027 as offshore oil and gas projects and international energy investments pick up. Also, since the launch of its capital return program, the global equipment provider has returned more than $1 billion to stockholders while employing both share buybacks and dividend payments. Currently, NOV carries a Zacks Rank #3 (Hold).

Price and Consensus: NOV

Oil States International: OIS has reported a $451 million backlog – its biggest mark in more than 10 years – showing strong customer demand. It is winning more projects and has a solid backlog, with book-to-bill above 1, meaning future sales are building up. This gives Zacks #3 Ranked Oil States International solid visibility and stability for revenue growth.

Price and Consensus: OIS

Zacks' Research Chief Names "Stock Most Likely to Double"

Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.

This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research