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Being a major pressure pumping player, BJ Services Company (BJS) remains significantly exposed to the weakening fundamentals of the onshore U.S. oilfield service market. Weak commodity prices and continued credit market turmoil has prompted E&P players to curtail spending plans, significantly affecting the outlook for players like BJ Services.
While the company should fare relatively better than many of its smaller peers, given the size and scope of its operations and its strong financial health, it is nevertheless faced with pricing pressures and margin compression in the coming quarters. The pressure pumping market was in an over-supplied state even before the current downturn, a situation that is expected to only worsen in the coming quarters given faltering demand.
We expect margins to remain under pressure in the coming quarters given eroding pricing power. So, while valuation has become reasonable, these concerns continue to keep us on the sidelines.
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