Weatherford (NR): Solid 2Q results, raising estimates
Goldman Sachs July 28, 2005
WFT 2Q2005 EPS of $0.64 beat our estimate of $0.62 due to higher other income + lower tax rate, w/ operating income 2% below our estimate on 5% higher revenue. Seasonal impact from Canada was $0.02 greater than expected (trend across the industry) + EPS was impacted by $0.02-0.03 from other transient factors. WFT indicated its PDS acquisition is on track, with improvement in PDS's financial performance in line w/ WFT's own. We are raising our 2005-07 EPS estimates to $2.85/ $3.60/ $4.15 from $2.61/ $3.35/ $3.75 due to stronger E&P spending trends. On our new estimates, WFT is trading at 17.5x 2006 PE = essentially in line with the group. Merger execution remains the key risk. (Goldman Sachs & Co., and or one of its affiliates, is acting as financial advisor to Weatherford International, Inc. in the proposed acquisition of Precision Energy Corporation's Energy Services Division and International Contract Drilling Division. Goldman Sachs & Co., and or one of its affiliates, will receive a fee for its financial advisor role.)
HOW DOES WFT 2Q05 EPS PERFORMANCE STACK UP?
WFT y-y revenue essentially grew in line with the group average and sequential growth comparisons are irrelevant due to greater impact of Canadian seasonality. Year-over-year EBIT margin grew 256 bps versus the group average increase of +394 bps, and was 101bps below of our estimate. Year-over-year incremental margin of 23.8% was below SLB and HAL's ~40% level, but was in line with SII.
Exhibit 1 - 2Q05 Revenue and EBIT trends - WFT vs peers
Quarterly Revenue seq chg y-y chg chg vs GS est
SLB (EX GECO) 9.8% 20.1% 6.1%
HAL (ESG) 13.1% 29.8% 6.4% BJS 2.7% 24.1% 1.8%
SII (ex distribution) 6.5% 23.0% 4.6%
WFT 9.3% 26.3% 5.4%
Quarterly EBIT seq chg y-y chg chg vs GS est
SLB (EX GECO) 20.6% 48.5% 15.3%
HAL (ESG) 29.5% 94.1% 19.5%
BJS 2.1% 54.4% 7.1% SII (ex distribution) 5.8% 41.5% 2.9%
WFT 5.4% 54.3% -1.7%
EBIT margins (bps) seq chg y-y chg chg vs GS est
SLB (EX GECO) 198 422 176
HAL (ESG) 267 700 231
BJS -11 394 99 SII (ex distribution) -9 197 -24
WFT -52 256 -101
Revenue/rig seq chg y-y chg chg vs GS est
SLB (EX GECO) 18.0% 6.0% 6.6%
HAL (ESG) 21.6% 14.6% 8.2% BJS 10.4% 9.5% 2.3%
SII (ex distribution) 14.4% 8.6% 5.1%
WFT 17.4% 11.5% 5.9%
Company reports and Goldman Sachs Research 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. |
