Barclays downgrades European energy service stocks

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Barclays announced a re-balancing of its ratings within the European Energy Services sector, downgrading Aker Solutions, Hunting, Maire Tecnimont, and Subsea 7 (OTC:) to Equal Weight from Overweight. In addition, Wood Group was downgraded to Underweight from Equal weight.

The move comes on the back of a period of positive performance for the sector in the second quarter of 2024, where the European sector experienced a 7% growth, outperforming both the wider energy sector and the oil price.

That surge is attributed to increased workloads, pricing, and asset viability across most global regions, except the U.S., where demand has been weaker than expected. In contrast, the global sector, which has a strong U.S. presence, saw a decline of approximately 5% in the same quarter.

“Importantly, orders ticked up during the quarter with US$18bn of awards announced, more than triple the quarter before, and this should lead to continuing commentary about the strength and longevity of the cycle,” Barclays analysts said in a note.

“This favourable outlook, however, has led our ratings to creep more positive on average and lose balance within our relative weighting system,” they added.

While the downgraded stocks still have notable upside potential, other names “have more upside potential currently,” analysts pointed out. Their preferred names in the sector include Técnicas Reunidas, Saipem, and TGS.