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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: upanddown who wrote (12717)2/24/1998 2:40:00 PM
From: dougjn  Read Replies (1) of 95453
 
Peg for oil drillers is a basically flawed analysis. That is because assuming that the last year's earnings increase, or even the projected increase one year out is absolutely not indicative of longer term growth rates, say five years average, which will be much lower.

A reasonable multiple to apply to 98 earnings is the five year forward growth rate, or probably better, three to four years from the end of 98 on out.

It is quite difficult to estimate that growth rate. I use 20% for most of the larger offshore drillers. Its a wing. That still makes them pretty attractive .... IF oil prices return to the high teens or better.

I'm afraid they won't for at least six months. Because I'm afraid the Saudis have a lot more to loose by say cutting production 1 million barrels than to gain from a higher price. Of course if all producers cut just a little bit they would all gain much more than they lost. But that ain't the dynamic these days especially.

Doug
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