Pride Petroleum Services (PDE) Message Board

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Gold/Mining/Energy : Pride Petroleum Services (PDE)

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From: Dennis Roth	11/3/2007 6:26:45 AM
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Pride International (PDE): Inexpensive deepwater leverage; reiterate Buy - Goldman Sachs - 11/02/07 What's changed Pride reported 3Q2007 EPS from continuing operations of $0.68 vs. our $0.73 and consensus of $0.77. We do not believe these estimates are directly comparable due to a number of items. We lowered our 2007/08/09 EPS estimates to $2.59/$3.59/$3.96 from $2.70/$3.86/$4.47, primarily due to asset divestitures and slightly higher operating costs. Pride issued 3Q2007 guidance of $0.54-$0.58 (vs. our $0.56). We lowered our 12-month target to $42 (8.5X 2008E EV/DACF) from $44. Implications (1) We maintain our Buy-rating on Pride shares. We believe Pride's assets are undervalued by the market and view the shares as an inexpensive way to gain exposure to the deepwater market. Deepwater fundamentals remain strong and we expect demand to outstrip supply through 2010. We estimate the Pride will generate roughly 46% of 2008E EBITDA from deepwater yet the shares are trading closer to jackup levered companies. Pride is overly characterized as a US Gulf of Mexico jackup company, in our view. We recognize that this is where the earnings volatility stems from but note that Pride earns only 12% of its income from these assets. We also view the company as an attractive acquisition target which provides upside optionality. We see the following as potential catalysts for Pride's stock: (1) a contract for the Pride Angola (high $400,000s is possible); (2) a contract for one of the two newbuild drillships; (3) term contracts with PEMEX to move additional jackups out of the US Gulf of Mexico; and (4) an upcoming analyst meeting (November 27, 2007). Valuation On 2008E EV-DACF/EV-EBITDA, Pride is trading at 7.3X/5.4X, a 3.4%/14% discount to the offshore drillers. Key risks (1) Capacity additions could result in lower utilization and dayrates; (2) cost inflation; and (3) a severe correction in commodity prices.

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