Nabors Industries(NBR) Message Board

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Gold/Mining/Energy : Nabors Industries(NBR)

NBR 48.52

-1.7%

Oct 31 9:30 AM EDT

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From: Dennis Roth	7/26/2007 8:32:08 AM
	of 174

Risk-reward is much improved; but it's still too early July 26, 2007 Goldman Sachs What's changed We are lowering our 2007E EPS to $3.33 from $3.54 primarily due to lower investment income in 2Q07 and lower operating income assumptions for US Lower 48 Drilling and US Well-servicing. We are raising our 2008E EPS to $4.31 from $4.30 driven by higher assumptions for the Canada and International segments. Implications (1) We believe the risk/reward for Nabors shares is much improved but think it is still too early for the shares to outperform. We expect deteriorating conditions in US land drilling coupled with near-term natural gas concerns to weigh on Nabors shares. We believe oil service stocks trade on operating momentum, and as such, do not expect Nabors shares to outperform if land drilling fundamentals are declining. With that said, we expect Nabors shares to bottom a few quarters before fundamentals turn. However, we believe there is still too much uncertainty in the natural gas market to call 4Q2007, or even 1Q2008, the bottom. We believe utilization needs to approach the important 85% level that typically leads to rising dayrates; however we estimate that Naborsâ€™ 2Q07 utilization for the US Lower 48 was 77% and do not expect this to improve in 2007. (2) Aside from North American uncertainty, international growth remains strong and could lead to multiple expansion as Nabors delivers results. Valuation We see $28 as a floor value for Nabors shares and view the $30 range as a potentially attractive entry point. We see 9% upside to our $34 12-month price target (7.5X 2008E EV/DACF) (down $1 due to a higher YE2007 net debt assumption). NBR is trading at 8.1x/7.0x 2008E EV-DACF/EV-EBITDA. Key risks Risks to our thesis and target price include: (1) capacity additions could result in a flattening or depression of leading edge dayrates, and (2) a severe correction in commodity prices.

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