Smith (OP/A): Still waiting for the breakout quarter
Goldman Sachs July 25, 2005
SII 2Q2005 EPS of $0.67 was above our $0.66 estimate w/ revenue 4% stronger, but EBITDA only +2%, translating into disappointing incremental margins vs HAL + SLB last Friday. SII had greater 2Q seasonal decline in Canada, raw material impact + no exposure to wireline/ LWD markets, where SLB/ HAL incrementals were strongest. Ex-Canada, SII oilfield incrementals were a respectable 30% w/ a less capital intensive business mix not likely to generate 40% incrementals even in the sweet spot, but better ROCE + free cash generation. SII continues to buy-back stock more aggressively than most. Pricing, volume, mix + the Canadian recovery appear likely stronger than expected + we are raising our 2005-2007 EPS estimates to $2.95/$3.71/$4.25 from $2.75/$3.45/$3.95. We maintain our OP/A rating + $85 fair value (23x 2006E PE vs 24.8x previously).
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. |
