Nabors (IL/A): Raising estimates, looking for stock buy-back Goldman Sachs April 28, 2005
Given stronger pricing trends in many of NBR's N. America businesses + our belief that E&P spending will rise 15% in 2005 + 10% in 2006 based on GS oil price assumptions of $50/ 55 in 2005-06, we are raising our 2005-06 EPS estimates for NBR to $3.40/ $4.20 from $3.20/ $4.00. We are also introducing a 2007 EPS estimate of $5.00, which assumes spending growth of + 5% as oil industry reinvestment rates would remain near historical lows exiting 2006 based on our commodity price/ capex assumptions. We maintain our IL/A rating with a positive bias, with our fair value estimate of $71 implying 32% upside. The next catalyst to look for is the potential implementation of a meaningful stock repurchase program.
VALUATION: FAIR VALUE SUGGESTS 32% UPSIDE POTENTIAL
We estimate fair value of $71 based on 9.5x 2006 EV-EBITDA estimate vs. a historical average multiple of 10x. We are lowering our fair value multiple to 9.5x 2006 EV-EBITDA from 10x prior as NBR's 11% ROCE estimated in 2006 is 400 bps above its 5-year average, and we continue to expect multiples to be inversely correlated with returns.
RAISING 2005 + 2006 EPS ESTIMATES ON HIGHER US LAND DAY RATES
We are raising our 2005 EPS estimate by $0.20 to $3.40 due to higher US land day rate assumptions (+$0.41), partly offset by lower utilization assumptions in Canada, Alaska, + Int'l (-$0.11) and higher costs in well services (-$0.05) and SG&A (-$0.05). We are raising our 2006 EPS estimates by $0.20 to $4.20 due to higher US land day rates + fleet size (+$0.52), partly offset by lower US Offshore day rate assumptions (-$0.05), higher SG&A, options expense, + tax rate (-$0.25). We believe there's more upside than downside to our estimates.
I, Terry Darling, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. |
