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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Tomas who wrote (25179)	8/19/2003 8:35:50 AM
From: DELT1970	Respond to of 206325

Merrill adds NBR to Focus 1 list: Nabors Industries (NBR; $37.50; C-1-9) Focus 1: World’s Largest Land Driller – Well Positioned for Future Growth (FlashNote ran 8/18/03) Volatility Risk: High 03E $1.25; 04E $2.20; Market Cap.: $4.42bn • We are adding Nabors Industries to Merrill Lynch’s Focus 1 list. In our opinion, the market remains myopically focused on short-term natural gas storage trends, and is not adequately valuing the earnings potential inherent in the world’s leading land drilling company. • Market Recovery Expected to be Sustained: We continue to believe that the North American onshore market is in the early stages of a recovery that should be sustained well into 2004. In our view, the only near-term solution to the natural gas supply problem is increased drilling activity. We believe it will be 4-5 years before LNG becomes a significantly larger source of incremental supply. In addition, we believe Nabors’ 2002 acquisitions in Canada were particularly well-timed, as Canadian drilling activity is at near-record levels. • Attractive International Opportunities: Nabors has a growing presence in several important international markets, including Latin America, Africa, the Middle East and Russia. Nabors is deploying a multitude of additional assets in international markets, which now account for over one-third of its operating cash flow. • Strong Cash Flow and Balance Sheet: Nabors’ balance sheet remains exceptionally strong, with cash and marketable securities of $872 million, long-term debt of $2,108 million and shareholders’ equity of $2,158 million. This equates to net debt/cap of only 36%. Nabors should be able to fund capex estimated at $300 million in 2003 from operating cash flow while maintaining a large amount of dry powder for other growth opportunities. • Currently trading at 17.1x our 2004 EPS estimate of $2.20/share and 10.3x our cash flow estimate of $3.65/share, we believe the shares are attractively valued. As the market begins to discount the continued increases in drilling activity that we forecast in 2004 and recognizes the full earnings power of the company, we believe the stock’s valuation will rise. • Our $50/share price objective is based on a multiple of 23x our 2004E EPS estimate of $2.20/share, and provides 33% upside potential. The current valuation is a discount to the company’s 5-yr median forward 12-month consensus P/E of 28.9x. We see commodity price risk as the primary risk to NBR achieving our price objective. The most critical element is the North American supply-demand balance for natural gas, as lower gas prices would likely lead to reduced exploration and development activity.