miles, RE: NE
I found this at the Yahoo thread. This is old news (from March 27) but I don't remember seeing it posted here before.
Salomon Smith Barney Research issued a research comment on March 27th that discussede Noble Drilling. It was written by Mark S. Urness. Some of the highlights of the paper are:
"We are adding Noble Drilling Corporation, an internationally diversified offshore driller, to the Salomon Smith Barney
Approved List in response to continued strength in offshore drilling activity as well as Noble's increasing exposure to the more attractive deepwater and international markets and reduced exposure to the more
volatile Gulf of Mexico region. In addition, the recent tentative OPEC/NOPEC agreement to cut production by 1.6MMB/D to
2.0MMB/D-led by Saudi Arabia, Venezuela, and Mexico-should result in a recovery in oil prices to a more stable high-teens to low-twenties per barrel level, according to Salomon Smith Barney Oil analyst Paul Ting. We see drillers, such as NE, as among the best plays on this pricing recovery.
"In our view, the current valuation of Noble Drilling is compelling..Given the strong earnings growth ahead of the company, we believe the multiple of 1999 earnings will expand to 14.0x within the next 12 months. This generates a price target of $45 per share, providing investors with approximately 50% appreciation potential. However, we recently lowered our 1998 EPS estimate for Noble to $2.00 from $2.10 in order to reflect our expectation for lower spending by E&P companies.
"We recently spoke with approximately 15 of the largest oil companies-those with upstream spending of at least $1.0 billion in 1998-and found that none of these companies has yet reduced its 1998
spending plans, that several of them are developing contingency plans, and that none of them believed in a new oil price paradigm. Large oil companies make up approximately two-thirds of the total spending in our survey. Based on recent discussions, we believe that the most likely case would be only a 2%-3% reduction in spending by these companies.
"We expect average day rate to advance to almost $60,000 by the end of 1998. "We believe that the market has been discounting bad news on oil prices into stocks with exposure to the price of oil as well as discounting a scenario of flat or negative spending in 1998 and substantial reductions in earnings estimates for oil service and drilling companies. We believe that these stocks remain attractively
valued and recommend purchase. Our Top Pick in the drilling sector is Noble Drilling.
"The management of Noble Drilling is repositioning the company through an increasing emphasis on deep offshore drilling from the historical focus on shallow drilling. The impact of this repositioning is beginning to be reflected in the company's revenues and profits and will have a substantial effect on overall growth in 1999 and 2000. In our opinion, investors have been overlooking the corporate transition and its potential effect on future growth because of the recent weak-ness in oil prices. With oil prices likely to recover to the high-teens level over the next 12 months, investor confidence should increase toward investment in the drillers and especially Noble, which is undergoing an internal metamorphosis that may permit substantial gains in profits."
Rating: 1M (Buy, Medium Risk)
Price Target: 45
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