Raymond James and Associates reiterates BUY rating for MAVK:
Excerpts:
Maverick Tube Corporation is one of the largest U.S. producers of Oil Country Tubular Goods (OCTG), the pipe used in the completion of oil and gas wells. Maverick also produces line pipe for the handling and transportation of oil and gas, and structural tubing and standard pipe used for various industrial purposes. The company is headquartered in Chesterfield, Missouri.
Maverick Tube announced the results of its second quarter ended March 30, 1998. Net income increased substantially during the quarter to $4.7 million, or $0.30 per share, up from net income in the same quarter last year of $2.9 million, or $0.19 per share. Maverick reported strong year-over-year improvement, with revenues and net income up over 6% and 59%, respectively.
Because of the lower shipment volumes, OCTG prices have started to weaken. Now that lower OCTG prices have started to materialize, however, distributors seemed to have stopped drawing down inventories. This should help improve shipment levels for the second half of 1998.
With the U.S. rig count still hovering around 900 working rigs, the current consumption of tubulars is relatively strong...
While sustained lower oil prices are a cause for concern, we believe that oil prices have started to stabilize ...
... Therefore, distributors must eventually begin to rebuild depleted inventory levels or risk being caught short of supply. This should help strengthen OCTG pricing in the second half of the year.
The company also stated in an earlier announcement that its OCTG shipments to Canada have fallen more significantly than its domestic shipments. This is due, in part, to a weaker Canadian dollar and to the early Spring Break-up in Canada...
Because of this weakness in shipments, OCTG pricing has come under pressure, which could put off our anticipated increases until late in the summer... .
... Therefore, we have lowered our fiscal 1998 earnings per share estimate from $1.65 to $1.45 and our fiscal 1999 EPS estimate from $2.30 to $2.05.
On the upside, even with these revisions, Maverick's stock is still very compelling. Based on our new next-twelve-month earnings per share estimate, MAVK is trading at only 11x on a price-to-earnings basis. Additionally, we believe that our new assumptions could be too conservative. Specifically, if these lower oil prices do not cause a significant decline in the rig count, or if the price of oil returns to the $17 to $18 per barrel range during the second half of 1998, OCTG distributors could be caught short of inventory, which would push OCTG prices and shipments well above our revised estimates. We therefore reiterate our BUY (1) rating. |
