ATW - Atwood Oceanics Inc. Message Board

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Gold/Mining/Energy : ATW - Atwood Oceanics Inc.

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From: Dennis Roth	8/10/2007 1:18:10 PM
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In-line quarter, cost inflation remains challenging - Goldman Sachs - August 10, 2007 What's changed We are raising our 2007E EPS to $4.06 from $3.89 as a result of lower fiscal 4Q cost assumptions. We are also lowering our 2008/2009E EPS to $7.35/$9.83 from $7.46/$10.30 driven by higher 2008 cost inflation guidance and downtime, which were partially offset by non-operating items. Our 12-month price target of $78 is unchanged (=7.9X 2008E DACF). Implications (1) Cost inflation continues to be the main focus for both Atwood and investors. The company revised 2007 cost guidance to $187- $188 million from $180- $187 million, representing ~30% yoy inflation which is above the prior guidance of 25%-30% in May and 20% in February. Annual inflation was just 20% if viewed on a per rig operating day basis; however, this was not the basis of the original guidance. 2008 yoy cost inflation guidance remains in the 15-20% range although the high end appears more likely. (2) The most recent fleet status reveled more downtime for 2008. (3) We believe that the company's apparent step up in spending on training and development for future opportunitiesmay suggest that management is preparing for eventual opportunities to acquire speculative newbuilds. (4) Despite cost inflation concerns, we continue to believe Atwood screens as an attractive M&A target, which is likely to provide a floor for the stock. Valuation Atwood currently trades at 11.9X/6.8X on 2007/2008E DACF, a 28%/3% premium to the peer group. On 2007/2008E EBITDA, the company trades at 10.6X/5.8X, +36%/+6.5% relative to peers. We remain Neutral-rated on Atwood's shares. Key risks Key risks to our thesis include severe oil price correction and/or excessive newbuilding of drilling rigs.

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