Atwood Oceanics (IL/A): Remains attractive but see more upside in other names - Goldman Sachs - May 01, 2006
We are lowering our 07 EPS for Atwood to $5.36 from $5.48 due primarily to an increase in tax rate. With approximately 80%/60% of 2007/08 rig days under contract, ATW has industry-leading visibility. However, ATW lacks exposure to rising spot market dayrates, and we continue to believe upwards EPS revisions are the most direct drivers of stock prices at this point in the cycle. Following recent outperformance - ATW is at a 16% premium to the group on 2007 EV/DACF vs a 6% discount historically - and, on balance, we believe ATW looks fairly valued. For deepwater exposure, we see more upside in RIG (IL/A) and DO (OP/A). We are leaving our 2006 EPS unchanged at $2.34 and introducing 2008E EPS of $9.16. Next potential catalysts include contract announcements on submersible Richmond and possibility for a second newbuild jackup. We maintain our IL/A rating and $56 fair value = +5% upside.
VALUATION
ATW currently trades at 8.2x our 2007E DACF, a 16% premium to the peer group vs. a 6% discount historically. On 2007 EV/EBITDA, ATW trades at 6.3x, a 16% premium to the peer group and a 4% discount to deepwater drillers DO and RIG.
FY2Q RESULTS SLIGHTLY BELOW EXPECTATIONS ON HIGHER COSTS
Atwood Oceanics recurring FY2Q06 EPS of $0.50 was below our estimate of $0.53 and $0.54 consensus with Contract drilling revenue 9% above our estimate +($0.14 EPS impact), offset by 26% higher operating expenses (-$0.19), mainly due to higher mob and other expenses on semi Southern Cross. EBITDA was 7% below our estimate (-$0.05 variance), partially offset by lower taxes (+$0.03). ATW is the 5th driller to report higher than expected operating costs, but we continue to see upside to offshore dayrates and remain bullish on the group. See Exhibit 1.
WE ARE LOWERING OUR 2007E EPS TO $5.36 FROM $5.48
Key drivers of our revision to EPS include: (1) Increased offshore drilling dayrate and utilization assumptions, partially offset by higher cost inflation (+$0.03 EPS impact); (2) lower depreciation (+$0.08) and offset by (3) higher tax rate (-$0.21) and (4 ) higher interest expense (-$0.01). See Exhibit 2.
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: Jason Gilbert, Daniel Henriques.
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Atwood Oceanics (IL/A): Results below expectations on higher expenses April 28, 2006
Atwood Oceanics recurring FY2Q06 EPS of $0.50 was below our estimate of $0.53 and $0.54 consensus with Contract drilling revenue 9% above our estimate +($0.14 EPS impact), offset by 26% higher operating expenses (- $0.19), mainly due to higher mob and other expenses on semi Southern Cross. EBITDA was 7% below our estimate (-$0.05 variance), partially offset by lower taxes (+$0.03). ATW is the 5th driller to report higher than expected operating costs, but we continue to see upside to offshore dayrates and remain bullish on the group. However, following recent outperformance - ATW is currently at only a 2% discount to RIG on 2007 EV/DACF, vs. a 13% discount historically - we believe ATW looks fully valued. We maintain our IL/A rating and $56 fair value.
CONFERENCE CALL INFORMATION: Today, Friday April 28 at 11am EST; dial-in 1-800-362-0571, Conference ID# ATWOOD.
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: Jason Gilbert, Daniel Henriques. |
