Tenaris is a global manufacturer and supplier of steel pipe products and associated services to the oil and gas, energy, and related industries. The company produces and sells seamless and welded steel tubular products such as steel casings, which sustain the walls of oil and gas wells during and after drilling.

Based in Luxembourg, Tenaris also manufactures and distributes steel line pipes to transport crude oil and natural gas from wells to refineries, storage tanks and distribution centers. In addition, the company provides premium joints and couplings for use in high pressure or high temperature environments, as well as coiled tubing for oil drilling and subsea pipelines.

The Zacks Rundown

Tenaris, a Zacks Rank #5 (Strong Sell) stock, is a component of the Zacks Steel – Pipe and Tube industry group, which currently ranks in the bottom 26% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it throughout the year:

Image Source: Zacks Investment Research

Candidates in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when included in a lackluster industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.

Along with many other steel-related stocks, TS shares have been struggling this year while the general market returned to new heights. The stock is hitting a series of lower lows and represents a compelling short opportunity as we head deeper into the latter half of the year.

Recent Earnings Misses & Deteriorating Outlook

Tenaris TS has fallen short of earnings estimates in four of the past eight quarters. Back in July, the company reported second-quarter earnings of $0.59/share, missing the $0.97/share Zacks Consensus estimate by -39.2%. Consistently falling short of earnings estimates is a recipe for underperformance, and TS is no exception.

CEO Paolo Rocca stated during the Q2 earnings call that despite high levels of oil and gas production in the United States, drilling activity has decreased, resulting in “reduced overall demand for pipes.” He also touched on the company’s outlook in other regions.

“The change in the government in Mexico and the uncertainties surrounding the policy for the energy sector are limiting drilling investment in the country. In Argentina, the necessary stabilization of the macroeconomic environment is delaying investment in drilling and the development of infrastructure in Vaca Muerta. This factor will affect our sales and results in the second half, when we expect that our sales volume will be 10% to 15% below those of the first half.”