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Jefferies bullish on oil-service
Recommends investors overweight the group
By Lisa Sanders, CBS.MarketWatch.com
Last Update: 4:19 PM ET Jan. 14, 2005
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DALLAS (CBS.MW) - Jefferies & Co. said Friday it remains bullish on the oil-service group through 2006 and said it expects earnings to rise, on average, 22 percent from 2005 levels.
"Our earnings expectations are consistent with our belief that we are in the midst of a multi-year upturn in the energy business characterized by high commodity prices, sharp depletion rates and rising worldwide energy demand," analyst Stephen Gengaro wrote in a note to clients.
Jefferies expects 2005 earnings to be up 35 percent vs. 2004 levels. The firm based its initial 2006 estimates on the expectation of 5 to 7 percent revenue growth and incremental margins of 30 to 35 percent.
"While there would likely be volatility in the group fueled by investors concerns about natural-gas inventory levels/prices, we would view these dips as opportunities for investors looking for an entry point," Gengaro said.
Also Friday, he raised his price target on the Philadelphia Oil Service Index (OSX: news, chart, profile) to 152 from 145. The index closed at 125.62, up 0.8 percent. See Energy Stocks.
Jefferies top picks are Veritas DGC (VTS: news, chart, profile) , Willbros Group (WG: news, chart, profile) , and NS Group (NSS: news, chart, profile) in the small-cap group; Smith International (SII: news, chart, profile) , Cooper Cameron (CAM: news, chart, profile) , and Grant Prideco (GRP: news, chart, profile) in the mid-cap group; and Baker Hughes (BHI: news, chart, profile) in the large-cap group.
"We strongly believe that rising earnings will ultimately fuel the stocks to higher levels," Gengaro said. He recommended investors overweight the group.
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