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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: SliderOnTheBlack who wrote (63955)4/6/2000 10:45:00 AM
From: Big Dog  Read Replies (2) of 95453
 
KEG Opinion from Dain Rauscher:Stock Opinion

Our near-term price target on KEG is $14 per share based on the strong cash
flow generation capability of the company and the ability and willingness to
de-leverage the balance sheet from operating cash flows. At 10x our 2001 cash
flow estimate of $1.40 per share, still a discount to the peer group
valuation, we expect the stock to continue its recent momentum and trade up
further as pricing, utilization, and results improve.

KEG currently has an existing asset base that can generate at least $250
million in EBITDA without any further acquisitions, but well before any
concerns about replacement-level day rates. Our current forecast for FY2001
is only $159 million. At the current Enterprise Value/EBITDA multiple, the
EBITDA target would imply a stock price of $17.50. Assuming that level of
cash flow would be reached in two years, discounted back, we get a price
target of $14 per share. Clearly, reaching that level earlier pushes our
price target higher.

Since the company continues to reduce debt, lowering its risk profile, we
should see multiple expansion. The higher operating margins and accelerating
growth argue for multiple expansion as well.
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