Smith International, Inc. (SII) Message Board

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Gold/Mining/Energy : Smith International, Inc. (SII)

SII 81.95

+0.2%

Oct 31 9:30 AM EST

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From: Dennis Roth	4/27/2007 9:30:01 AM
	of 16

Still Neutral as we continue to see more upside elsewhere April 27, 2007 Goldman Sachs What's changed Smith posted solid 1Q2007 results due to strength in the deepwater market and Eastern Hemisphere. We raised our 2007 EPS forecast by $0.02 to $3.13 and left our 2008 forecast unchanged. Implications (1) We reiterate our Neutral rating for Smith International shares and the solid 1Q07 performance highlights continued solid execution. Smith International has a strong management team focused on ROCE and a solid track record for acquisitions. However, among the mid-cap service companies we continue to see more upside in other names. (2) Total M-I SWACO offshore revenues increased 13% sequentially. We believe that continued strength in offshore will continue to drive performance as the company believes that there are 117 new offshore rigs scheduled for delivery through early 2010. In 1Q2007, growth was driven by the U.S. deepwater market and by the offshore market in the Eastern Hemisphere. Valuation Smith is trading at a 2007 EV-DACF/P-E of 13.2X/16.6X, versus Weatherford at 10.3X/15.5X and the peer group of 12.4X/16.1X. Our 12-month price target is unchanged at $47 (12.0X EV/DACF). Key risks Key risks to our thesis include: (1) A U.S./Global recession could result in weaker commodity prices and further E&P capex cuts; and (2) Weakness in natural gas prices could lead to further E&P capex cuts in North America.

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