Smith International, Inc. (SII) Message Board

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Gold/Mining/Energy : Smith International, Inc. (SII)

SII 81.76

-0.3%

9:45 AM EST

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From: Dennis Roth	7/25/2007 9:07:46 AM
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In-line quarter for Smith; Guidance raised - Goldman Sachs - July 25, 2007 What's changed Reported EPS of $0.76 came in above our $0.75 and in-line with consensus. Management raised its 2007 EPS guidance by $0.05 to $3.15 - $3.25. We raised our 2007/2008/2009 EPS forecasts by $0.07/$0.09/$0.09 to $3.20/$3.90/$4.47. Implications (1) We reiterate our Neutral rating for Smith International shares. Smith International has a strong management team focused on ROCE and a solid track record for acquisitions. However, among the service companies we continue to see more upside in other names. (2) Total M-I SWACO offshore revenues increased 16% sequentially with deepwater volumes increasing 32%. We expect offshore growth to continue driving performance as more newbuild rigs are delivered through 2010. Secular growth in deepwater exploration is one of our favorite themes for the group. However, we view Diamond Offshore (Buy), FMC Corporation (Neutral) and Cameron International (Neutral) as better vehicles to invest in this theme. Strong results in M-I SWACO were driven by Latin America, Europe and Asia. Valuation Smith is trading at a 2008 EV-DACF/P-E of 12.3x/15.6X, versus Weatherford at 9.9x/13.2x and the peer group of 11.5x/15.1x. We fine tuned our price target by $1 to $62 (=12.5x 2008 EV/DACF) due to slightly higher estimates. Key risks Key risks to our thesis include: (1) A U.S./Global recession could result in weaker commodity prices and further E&P capex cuts; and (2) Weakness in natural gas prices could lead to further E&P capex cuts in North America.

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