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Gold/Mining/Energy : Nabors Industries(NBR)

NBR 48.52

-1.7%

Oct 31 9:30 AM EST

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From: Dennis Roth	10/4/2007 7:38:45 AM
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Lowering estimates, but a buying opportunity may be nearing - Goldman Sachs - October 04, 2007 What's changed We lowered our 2007/2008/2009E EPS to $3.19/$3.58/$4.21 from $3.33/$4.31/$4.43 (-4%/-17%/-5%) due to a less optimistic view of North American land drilling/well servicing and the US Offshore market. Our estimates for the International segment are slightly lower in 2007, unchanged in 2008 and slightly higher in 2009. We lowered our 12-month price target to $35 from $36 (8.6X 2008E DACF). We see $28 as a floor and view the $28-$30 range as a potentially attractive entry point, based on recent trough trading levels and asset values. Implications (1) We expect Nabors to miss 3Q consensus and potentially guide lower going forward (we are 4%/11% below 3Q/4Q consensus). This could create an attractive buying opportunity if shares approach $28. (2) The US land rig count is lagging our initial expectations and the idle rig count appears to be increasing due to capacity additions. We estimate that ~80 of Nabors’ rigs are currently idle vs. 68 in early July and see potential for more rigs to be laid down over the next few months. (3) The US well-servicing market has been weaker than expected despite more normal (dry) weather and high oil prices. We believe pricing is also starting to weaken for the first time this up-cycle. (4) Nabors’ US Offshore fleet is likely facing pressure given the increase in idle jackups in the US Gulf of Mexico (18 currently vs. 12 in early Aug.). (5) We lowered our 2007 estimate for the international segment due to recent comments from management suggesting $370 million in operating income vs. our previous $387 million. Valuation Nabors is trading at 7.7x/6.3x 2008E EV-DACF/EV-EBITDA vs. 7.1x/5.8x for the Offshore Drillers. Key risks (1) Capacity additions could result in lower utilization and dayrates, and (2) a severe correction in commodity prices, primarily natural gas.

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