Earnings season - selloff, rally, or trading rangebound ???
<<FOCUS-Global Marine earnings hit by soft drilling market
HOUSTON, July 15 (Reuters) - Offshore oil and gas driller Global Marine Inc. (NYSE:GLM - news) Thursday reported that its earnings fell sharply in the second quarter and that it expected second half earnings to be significantly lower than those of the first six months of 1999.
Noting that firmer oil and gas prices had not yet prompted oil companies to increase their drilling budgets, Global reported that net income dropped almost 62 percent to $28.2 million, or 16 cents per diluted share, from $73.4 million, or $0.42 cents per share, in the same period of 1998.
The reported earnings per share exceeded Wall Street analysts' consensus estimate of 14 cents, according to data compiled by First Call Corp.
Chairman and Chief Executive Bob Rose said in a statement that the company was encouraged by the recent rebound in oil and gas prices.
But he also said that the offshore drilling industry continued to suffer the effects of reduced drilling budgets set months ago when prices were much lower.
''As a result we expect our earnings in the second half of 1999 to be significantly lower than our first-half earnings as rigs, particularly those on long-term contracts in the North Sea and offshore West Africa, come off contract and roll over to lower-rate contracts or become idle,'' he said.>>
<<Carl Thorne, chairman and CEO of Ensco said although oil prices have shown improvement and "bodes well for the future", he "does not believe that it will have a meaningful impact on activity levels and day rates this year.">>
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So far we have seen companies hitting estimates - but, those estimates had been greatly ratcheted down of late. The good news is no selloff ''yet''; but the bad news is that any fundamental recovery of rig utilization, dayrates, earnings and new orders; is not expected through year end 1999... With crude at a 20 month high; we are teetering dangerously imho, where we enter another ''deadzone'' of nothing fundamentally positive to either be a catalyst to take us measureably higher in the driller & service stocks (except some laggards), or even to keep us propped up here at OSX 80ish. If there is any profit taking on crude, any disappointing API #'s etc. then I still think we sell off 10-15%... What I actually see, is the Street quietly reducing positions here - taking some profits; then issuing downgrades after the earnings season - using the still further out anticipated date of a fundamental Oilpatch recovery. - then the selloff.
We are asking too much of Crude Prices here... it is the ''entire'' story for the OSX maintaining 78-80+ here. I don't think it can do it with crude prices alone (even though the fundamentals for crude are strong!). Personally, the fundamentals and risk vs. reward metrics have NEVER been more in favor of the E&P sector vs. the Driller/Service stocks.... and small/mid caps are where the $ are.... I've been pumping my ''mini-basket'' of leveraged E&P's here - especially the nat gas oriented co's.
Here is a comparison of the returns of my ''mini-basket'' vs. the OSX of late:
techstocks.com
I believe that the E&P's during the next 2 quarters will really separate themselves fundamentally from the OSX stocks. Thery are poised for strong quarter over quarter & year over year comparisons. They are putting cash on the bottomline each & every day during this 20 month high in Crude Prices - the drillers & service companies are simply NOT seeing any immediate effect on the bottom line - and are quoted in saying - it's still 6+ mos. away...
Lots of good trading opps here. There are some nice trades to be made here in the Oilpatch laggards here imho.The posterchild for laggards of late has been NOI, who has quietly done very well of late during this OSX trading range... laggards like - OMNI SESI GLBL HOFF WG FGI UFAB GIFI SCSWF TMAR may vastly outperform the other OSX stocks who have moved more strongly of late... PGO - still cheap and has the best 2 year upside of ANY OSX stock imho, perhaps other than FLC - which still reamins the leveraged bet for the eventual full recovery of the Oilpatch...
Good Trading... & GO Gas !!!!!!!!!!!!!!!!!!!!
Trading picks anyone ? Saw comments here earleir on EEE - a very interesting play.... for the risk oriented (illiquid, & micro cap) VEI is undervalued, FXEN is entering a more aggressive mode in Poland, EEX still has those ''Elephantine'' drilling projects, MHR is super leveraged to commodity upside and is entering an incredibly aggressive drilling program... are there ''any'' screaming buys in driller, or service stocks ??? (FLC looks like the most upside imho- I will load on any sectorwide selloff here - just holding for now) picks anyone ??? |
