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Tickers in this Article: BJS, HAL, SLB, WFT
The carnage in the stock market over the past week has been fairly broad-based, but the energy sector - the former darling of the momentum crowd - has been hit particularly hard. A panicked selling environment usually creates bargains for those brave enough to buy.

Pressure Pumping
One stock that stands out as being particularly oversold is BJ Services (NYSE:BJS), a leading oilfield services company. BJ Services' main business is pressure pumping, or well-stimulation services. This refers generally to injecting fluid into a well to increase production, including "fracturing", referred to colloquially in the oil business as "fracing" a well. (You can drill down on drilling information with our Oil And Gas Industry Primer.)

BJ Services closed at $9.55 on October 10 - down from a peak reached in January 2006 in the low $40s. The last time it traded in the single-digit range was in late 2001, during the last recession.

A Closer Look
So, let's take a closer look at BJ Services to see if this is a buying opportunity. The company is solidly profitable and earned 48 cents in its most recent quarter. Note that earnings were down from 57 cents in the same quarter last year. According to Thomson Financial Network, annualized earnings for 2009 are estimated to be $2.33, giving the company a forward price-to-earnings ratio of about 6. Clearly the market is saying it feels that earning estimates are too high for next year, so let's take a haircut to earnings and determine a more realistic P/E ratio. If we use $1.10 for earnings, which is what the company earned in fiscal 2004, then the P/E ratio is still only around a multiple of 10.

Many companies became over-leveraged during the era of easy money, so we should examine the balance sheet to see if BJ Services overindulged as well. At the end of Q3 2008, the company had net debt of $519 million for a net debt-to-capital ratio of 13.7%. This figure is certainly well within the comfort zone.

The term structure of the debt is also not a worry. BJ Services has $498 million in long-term debt split about equally between two issues, one due in 2011 and the other due in 2018. The company does have $102 million in short-term borrowing on the liability side of its balance sheet, but it has a $360 million credit line and $82 million in cash and equivalents to cover any rollover problems.

Some Flexibility In Capital Spending
The company estimates that capital expenditures for fiscal 2008 would be $640 million. While this is high, a large portion of it may be discretionary and can be deferred if needed. Eighty percent of the BJ Services "frac" fleet is new, but the company kept the old equipment in service due to high demand. If business really slows down, it can retire the aging equipment to save money.

Other companies that perform pressure-pumping services include Halliburton (NYSE:HAL), Schlumberger (NYSE:SLB) and Weatherford International (NYSE:WFT). All three are much more diversified oil-services companies than BJ Services and are not considered pure plays on the pressure-pumping business. Schlumberger is trading at only a two-year low, while Halliburton and Weatherford last reached these trading levels in June 2005 and November 2005, respectively. Weatherford also has more debt than BJ Services with a net debt-to-capital ratio of 35%. (Much more detail is available at The Industry Handbook: The Oil Services Industry.)

Bottom Line
BJ Services seems to be the victim of overzealous sellers and may represent a decent buying opportunity for long-term investors.

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