Ok you Cat Daddy's -- time for some FGII cheerleading. I just rcvd the new Jefferies report on FGII where they reiterate their BUY rating.
If you read this report you will sell everything else you own to buy FGII.
Here are some juicy highlights:
12 month price target is $50.
Since the July 1997 IPO, Jefferies '98 earnings forecast has increased by 154% -- and FGII stock price has declined 48% from its peak on 11/6/97.
The outlook remains robust. Backlog continues to grow -- now at 321 million. Memorandums of Agreement and pending projects could take the work backlog to the 800 million to 1.5 billion dollar range.
]Worldwide shipyard capacity continues to be constrained and demand for deepwater rigs and long-legged jackups remains strong.
The growing backlog provides high earnings visibility and reduces risk to '98 and '99 earnings results.
Strong balance sheet and uncommitted free cash flow provide flexibility for expansion. Debt free and company generates tremendous free cash flow that will ultimated be used to further expand shipyard capacity and acquire complimentary products and services.
Company has potential to generate full capacity earnings of $3.61 at current pricing and margins. At 13 times earnings, FGII can trade to $47 or more. The $50 price target is based on a 13X multiple of $3.61 plus a partial recognition of the estimated $4 of value creation from reinvesting free cash flow generated in '98-'99.
Earnings outlook has improved dramatically in the face of the stock decline. FGII remains one of our top picks.
FGII has delivered .... and then some. Since the 7/97 IPO it's backlog has increased to $321 million from $65 million, gross profit margins have come in well above expectations, demonstrationg the Company's strong cost control sytems and good bidding practices.
FGII was taken public on the premise of building jackups. However, major semi projects have come on-stream much faster than anticipated. Therefore, the margin forecast has been increased significantly.
The $321 million backlog is largely composed of semi projects. The long term planning horizon of deepwater minimize these projects susceptibility to short-term commodity price fluctuations.
Pending deals which would increaes the backlog to $822 million would extend earnings visibility to 2000. Plus there are several other projects that may become firm within the next 6 months that would increase the backlog to $1.5 Billion.
Possible areas of expansion include:
New Markets -- including FPSO's, new specialty class jackups and other atractive offshore assets.
New Products -- including key rig components such as winches, mooring systems, gear and racking equipment, drilling equipment, etc.
New Alliances -- such as the Ocean Rig/Dalian relationship, the Ilion venture, rig leasing, amongst other projects.
New Shipyards -- potentially tapping other rig markets and labor pools.
Dog Notes:
Jefferies earnings forecast of $3.61 is based only on the current firm backlog of $321 million. So ANY movement toward the $1.5 Billion backlog number would be a big addition to FGII's earnings.
The 1999 earnings forecast of $510 million is still only 58% of FGII's estimated revenue capacity at full utilization.
Ok, that's it from the Big Dog. Hope you guys can see why I LOVE this stock. I predict that FGII will even blow away these estimates just like they did with Jefferies original estimates last July.
Patience my friends, patience. |
