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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Razorbak who wrote (64863)	4/18/2000 12:04:00 PM
From: Big Dog	Read Replies (1) \| Respond to of 95453

From Dain Rauscher this morning: THIS IS THE OPPORTUNITY MANY INVESTORS HAVE BEEN WAITING FOR Oilfield services stocks dropped 3% yesterday (April 17) as investors, primarily those on the West Coast and typically 'momentum' investors we are told, liquidated oilfield service stocks after their very strong run-up in order to buy technology stocks following Friday's market drop and during Monday's strong rally. The stocks that had been outperforming the oilfield services index, traditionally a criteria for ownership by momentum investors (chicken vs. egg), have been the ones most impacted by the switching. We believe this creates a very strong and unique opportunity for many investors who have been interested in investing in a sector but have delayed due to the stock price run-up so far and fast in that sector. Clearly, the outlook for continued earnings growth during the next several quarters is very strong in this sector. It is a cyclical industry in the middle of a cyclical recovery in a strong commodity price environment and early enough in the cycle that earnings growth during the next several quarters is very strong and visible. The really fun part is how strong the activity projections are shaping up. At the beginning of the year, the estimate for U.S. drilling rig count improvement was 15%-17% for the year. Looking at the historical seasonality of the U.S. rig count, it now looks like drilling activity could be up more than 25% for the year, a 50% improvement over expectations and drivers for many oilfield service stocks. Witness an oilfield tubular goods manufacturer who reported earnings 40% better than consensus as orders for casing needed during the next 60-90 days increase dramatically. This basically confirms our revised projections, indicating not only the unseasonable strength of the U.S. rig count in the first quarter, but the continued increase in demand going forward. The number of rigs drilling for crude oil increased by 30%-plus last month alone, indicating that strength in that sector should push overall services demand and equipment utilization higher. The international rig count was up by 8% last month alone and international activity is not expected to really begin improving until the second half of the year. Natural gas is at $3.15, more than 75% better than a year ago. When you consider that natural gas prices, during a weak-demand month, after the warmest, lowest demand winter in 100 years, with drilling up 60%-plus in a year, the futures strip still looks stronger than it ever has in its history. Crude oil at $25 still has more upside than downside in the near term in our opinion, providing not only a boost to pyschology but a 40% increase to the 15-year historical average price. Stock Opinion ((Summary:)) Companies have already begun to beat the consensus estimates and it is still very early in the cycle. Domestic activity (North America) is already beginning to pick up and it is very early in the turn which is the best opportunity. A pick up in international activity is virtually inevitable in the current price environment and those operations, with higher revenues and margins, should accelerate many company's earnings through the balance of the year, in our view. ((Best Ideas:)) ((BJ Services, Inc. (NYSE: BJS; $56.94) Strong Buy-Aggresive; Price Target: $76:)) One of the best-performing stocks which is seeing the earliest pick up in activity and pricing, BJS has been a top holding by many faster money accounts. The reality is that earnings estimates have moved up most for BJS and they continue to do better than expected in their EPS reports. We expect BJS to beat the consensus for the March quarter by $0.01-$0.02. Earning only a 12% return on existing and new capital employed at the peak of the cycle (too conservative an estimate), would generate earnings greater than $5.oo per share for BJ Services. Our 12-month price target is $76 per share, which is derived by applying a currently observed multiple of 32x our 2001 estimate. ((Cooper Cameron Corporation (NYSE: CAM; B-Agg; $63.38) Buy-Aggressive; Price Target: $81:)) Spending by the majors and international spending are both expected to pick up in the second half of the year. That is one of the most widely accepted statements in the industry today. The first place the majors are going to commit capital is in the deepwater, where the number of new discoveries continues to set records. Spending to develop these discoveries is the earnings accelerator for CAM--be early. Consensus for March is $0.22. Our confidence is very high on that number. We are at $0.23. Our $81 price target is based on the current Enterprise Value/EBITDA multiple and our projected 2001 EBITDA estimate of $287 million which is 16.6x. While this is at the upper end of the range, remember that we believe the stock will trade on the increase in order rate which precedes the recognition of earnings by six to nine months, discounting that multiple and the earnings (EBITDA) growth. ((Key Energy Services Inc. (NYSE: KEG; $8.50) Strong Buy-Speculative: Price Target: $14:)) Whoever spooked out of this stock, dropping it from $12, did not do it on the face of the fundamentals which continue to improve and accelerate. Consensus for the March quarter is ($0.05) and EBITDA of approximately $30 million. Results are highly likely to beat in both categories, with debt reduction of $31 million. The Altura project being picked up by Oxy. Oil is greater than $18-$20, and all that is needed. Our $14 price target is based on a 2002 EBITDA target of $250 million discounted at 20%. With results accelerating, the time value is reduced and our price target should move up. We would be an aggressive buyer.