OIS, OIL States International Message Board

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Gold/Mining/Energy : OIS, OIL States International

OIS 7.880

-2.0%

3:59 PM EST

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From: Dennis Roth	11/5/2007 7:52:46 AM
	of 13

Oil States International (OIS): Lowering estimates following a disappointing quarter - Goldman Sachs - 11/02/07 What's changed OIS reported 3Q07 EPS of $0.97 – below our estimate and consensus of $1.00. The miss was worse than it appears; better tax rate (+0.06) helped offset significant weakness in Accommodations (-$0.05) and Tubulars (-$0.01). We lowered our 2007/2008/2009 EPS estimates by $0.19/$0.41/$0.12 to $3.82/$4.11/$4.78 given our view that these challenges will persist over the near-term. 4Q07 guidance of $0.92 - $0.98 is below consensus of $1.07. Implications We remain Neutral on OIS shares. We expect investors will take a “wait and see” approach to OIS in the near-term given the uncertainty in NAM natural gas market and weak OCTG fundamentals. However, valuation appears relatively inexpensive at current levels, especially following Friday's 13% sell-off. Key takeaways from 3Q are: (1) 3Q07 EBIT margins in Rental Tools declined to 26.9% from 27.8% in 2Q07 due to the lower margin Schooner and Well Testing acquisitions. Ex-acquisitions margins were flat. Going forward, we believe margins may be under pressure due to pricing challenges in NAM. (2) Accommodations EBIT margins improved to 24.5% vs. 21.3% in 2Q07 due to more profitable oil sands projects. Gains were partially offset by weakness in Canadian land drilling. In the near-term, we do not expect a sharp rebound in Canadian activity and expect favorable margin mix to persist in the accommodations segment. (3) Offshore remains strong. Management stated that revenue capacity (~$135mm/quarter) is expected to increase by 5-10% in 2008. Valuation OIS is trading at a 2008E EV-DACF/P-E of 7.7X/9.0X, versus the group average of 12.8X/16.3X. We lowered our 12-month price target by $3 to $45 (=9.0X 2008 EV/DACF) Key risks Key risks include a sustained decline in commodity prices and the broader stock market indices.

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