Core Laboratories N.V.

Core Laboratories N.V. (NYSE: CLB) is a global leader in providing the oil and gas sector with proprietary and patented reservoir description and production enhancement services and solutions. These services and solutions can help its clients to improve reservoir performance and recover more oil and gas from their producing fields. CLB employs roughly 3,700 people and has over 70 offices in 50 countries.

Why should Investors Book Profits?

• Reduction in Topline and Margins: Due to delays in exploration and production projects in offshore and overseas markets, CLB's total revenues fell 3.49% YoY to USD 470.25 million in FY21 (ended December 31, 2021) from USD 487.27 million in FY20. CLB also saw its EBITDA margin drop from 16.5% in FY20 to 13.2% in FY21.
• Leveraged Balance Sheet: The company's debt/equity ratio was 1.21x as of December 31, 2021, compared to the industry median of 0.39x. In addition, its long-term debt-to-total-capital ratio was 54.0%, compared to 18.9% for the same period in the industry. The company's exposure to balance-sheet risk has increased due to this.
• Supplier Concentration Risk: A small number of third-party suppliers and vendors are available in the marketplace for some of the company's product lines. As a result of this concentration in parts of its supply chains, its business and operations could be harmed if its key suppliers' quality or timely delivery of their products were to suffer substantial disruptions.
• Technical Weakness: CLB's prices moved up by ~35.84% from the last recommended entry price and made a high of USD 35.83 on March 08, 2022. Prices reached a crucial resistance level of USD 35.83 but were unable to break this level, indicating the possibility of a downside correction which may lead the prices towards the resistance turned support level of USD 28.55.
• On the weekly chart, RSI (14-period) is reached an overbought zone at 78.86 levels, supporting a downside correction. However, prices are still sustaining above the trend-following indicators 21-period SMA and 50-period SMA and may act as the support levels for the stock.

 Valuation Methodology: Price/Earnings Per Share Based Relative Valuation

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

CLB's stock price has surged 27.37% in the past week and is currently leaning towards the mid-band of its 52-week range of USD 21.08 to USD 49.87. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 30.00.

Considering the significant rise in the share price in a short span, leveraged balance sheet, the decline in revenues, stress on margins, and other technical indicators, we recommend a "Sell" rating on the stock at the closing price of USD 35.04, up 13.07% as of March 08, 2022.

Three-Year Technical Price Chart (as of March 08, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.