ATW - Atwood Oceanics Inc. Message Board

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Gold/Mining/Energy : ATW - Atwood Oceanics Inc.

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From: Dennis Roth	5/11/2007 5:58:38 AM
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Atwood Oceanics, Inc. (ATW) Energy Goldman Sachs Stock rating: Neutral Coverage view: Neutral Price: US$63.93 May 10, 2007 U Atwood Oceanics, Inc. (ATW): Cost control is a real concern but M&A optionality provides a floor What"s changed We are lowering our 2007/2008E EPS to $3.98/$7.32 from $4.39/$8.10 driven primarily by higher cost assumptions, which were partially offset by non-operating items. We are also raising our 2009E EPS to $9.59 from $9.16 on non-operating items. Our 12-month price target of $61 is unchanged (=10.6X 2007E DACF). Implications Cost inflation continues to challenge Atwood as a number of downwards estimate revisions over the last few quarters has demonstrated. The company revised 2007 cost guidance to $180 million - $187 million, representing 25%-30% yoy inflation which is significantly above the prior guidance of 20% in February and the peer group range of 15%-20%. With that said, we continue to believe Atwood screens as an attractive M&A target, which is likely to provide a floor for the stock. We see potential for additional cost-driven estimate revisions to continue in late 2007 and 1Q2008 as the majority of scheduled shipyard projects are concentrated in this timeframe. Meanwhile, the company's apparent step up in spending on training and development for 'future opportunities' may suggest that management is preparing for eventual opportunities to acquire speculative newbuilds. Valuation Atwood currently trades at 11.1X/6.7X on 2007/2008E DACF, a 38%/13% premium to the peer group. On 2007/2008E EBITDA, the company trades at 9.8X/5.6X, +53%/+19% relative to peers. Atwood's smaller size, unlevered balance sheet and large contract coverage make it an interesting name in terms of M&A and LBO potential. Key risks Key risks to our thesis include severe oil price correction and/or excessive newbuilding of drilling rigs.

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