Hi guys...I haven't had a chance to follow the messages on the baord the last couple of days. But I saw KEG get mugged today...yuck!
Here is what Dain has to say:
KEG'S BUSINESS CONTINUES TO IMPROVE: EPS REPORT LIKELY TO BEAT CONSENSUS
In the March quarter, the company was averaging approximately 46k-46.5k hours
per week for its workover rig fleet. That moved to 47.5k-48.5k in the June
quarter, which was a nice and significant improvement. Since early July,
however, we have seen a step-change hours worked averaging more than 52k
hours through this quarter. ||
||As a result, utilization is very high with customers on the waiting list
for rigs in many operating areas. We are hearing from E&P companies who have
workover and remedial work planned but cannot get a rig for days and
sometimes weeks. ||
||As a natural progression of this, we are seeing rates increase. Adding to
this is the likelihood that management will institute a price hike in
addition to the normal strength in margins from the tight supply/demand
balance. ||
||The company reports earnings for the fourth quarter ending its July fiscal
year on Monday, August 21, probably before the market opens. The Street is
looking for a loss of ($0.01). We are at break-even. We are highly confident
the report will beat the Street. ||
||Since the secondary offering in June, the stock has lagged, probably as a
result of some investors who played the deal and then sold the stock when it
and the OSX didn't immediately rush to new highs. It still seems to be
shaking off some of the technical effects of that drop. Monday's earnings
report should have a positive effect. We recommend buying the stock in front
of the earnings announcement.Stock Opinion
Our price target on KEG remains at $15.50, as the discount versus its peer
group should narrow with the deleveraging of the balance sheet and dropping
debt from approximately $857 million in 1999 to approximately $575 million
post-deal. Our $15.50 price target is based on a 12x enterprise/EBITDA
multiple for calendar 2001 results. With the peer group of companies trading
at 11x 2001 CFPS estimates and 11x enterprise value/EBITDA, our valuation
target is reasonable, in our view. KEG shares are currently trading at a 35%
discount to its peer group 2001 CFPS valuation, indicating significant
relative as well as absolute performance potential. |
