Smith Int'l (OP/A): 4Q EPS solid, but relative outperformance still elusive - Goldman Sachs - January 30, 2006
We are raising our 2006-07 EPS estimates to $2.15/ $2.70 from $2.00/ $2.40 for Smith International (SII) based on higher E&P spending growth assumptions as well as our fair value estimate to $50 (+18% upside potential, based on 19X 2007 P-E) from $44. SII 4Q2005 EPS of $0.44 beat our estimate and consensus of $0.43 due to a lower tax rate, with stronger revenue/ margins from Wilson (distribution) and Smith Svs (tubulars and downhole tools) offset by a charge settling a patent infringement suit with HAL. Excluding the charge, SII EBIT beat our estimate by 3%, which was below HAL and BJS of +5% outperformance and SLB of +16%. Harvesting improved pricing and a return to above average industry growth in drill bits and fluids - not accuracy of management guidance as suggested on the call - are likely to be the key issues determining relative estimate revisions and stock price outperformance for SII in 2006, in our view.
Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Terry Darling; Jerry Revich. |
