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The onshore oilfield services (OFS) industry has weaker fundamentals than the consensus currently believes and valuations are still too high for companies like Baker Hughes (BHI) and Flotek Industries (FTK). Coinciding with our #EarningsSlowing theme, as OFS companies report for Q3, they could guide lower for 2013. Energy Analyst Kevin Kaiser lays out his case:

Nearly every business line that services the North America land oil and natural gas E&P sector is oversupplied due to equipment overbuild and slowing demand.  The industry could face years of excess capacity and weak profit margins.  Capacity utilization for high end drilling rigs and hydraulic fracturing equipment is now in the mid-80’s by our estimates, down from the high-90’s in 4Q11 and 1Q12.

OFS: Energy Expectations  - energyslowing

As you can see in the above chart, revenue growth expectations are lower for 2012 and 2013 compared with 2011. Margin compression and negative top line growth will likely continue for these companies. We’re not ready to get long these stocks yet, even after post-earnings pullbacks. When consensus estimates come down,