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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: waverider who wrote (16793)3/27/1998 2:14:00 AM
From: Czechsinthemail  Read Replies (1) of 95453
 
Diamond,

I am assuming ESV will catch up or at least outperform over the short to intermediate term. Longer term, the deep drillers may continue to outperform, which is why I favor RIG as a core holding. What you don't see from the price graphs is how the companies compare in terms of real and projected earnings growth. Perhaps if you could graph relative PE's over time you could get a sense of that.
Part of the difficulty is in quantifying differences between different drillers. For example, looking at their fleets, I would say NE is currently more of a jackup driller and thus more like ESV than RIG. Sure NE is moving toward a proportionately larger deep drilling presence, but currently most of their fleet is jackup rigs -- same as ESV. So at some point you have to ask yourself how much PE premium should NE have to reflect that difference. With NE trading at about 31.5X trailing earnings and ESV trading at about 18.3X, ESV simply seems like a more compelling value to me. Part of my hypothesis in selecting ESV is that rising oil prices will increase the demand/dayrate picture for jackups, platforms and barges in ways that will produce an upward revision in earnings estimates going forward. The same may be true for CDG as well. I think it has been priced with the expectation that its growth will slow going forward, so if growth exceeds those expectations, it may do extremely well. There is also the possibility that CDG may be bought out. That speculation has done wonders for MDCO.
good luck,
Baird
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