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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (20)	11/3/2007 6:59:48 AM
From: Dennis Roth	Read Replies (1) \| Respond to of 111

Hornbeck Offshore Services (HOS): Solid 3Q primarily due to the Seamar acquisition; maintain Sell - Goldman Sachs - 11/02/07 What's changed Reported 3Q2007 EPS of $1.09 was above our estimate of $0.84 and consensus of $0.83. Guidance was revised to reflect the Seamar acquisition which resulted in a 25% increase in 2007E EBITDA guidance. We thus raised our 2007/2008/2009E EPS to $3.34/$3.97/$4.41 from $3.09/$3.72/$4.14. However, our 4Q07 and 2008 operating income estimates are unchanged at $34.8 million and $173 million, respectively. Our 12-month price target is unchanged at $39 (6.7X 2008E EV/DACF). Implications We maintain our Sell rating on HOS shares and believe Wednesday's 11% rally was excessive. We believe the 3Q beat was primarily due to a better than expected impact from the Seamar acquisition and less due to stronger than expected underlying fundamentals. Implied EBIT guidance for 4Q2007 of $30.1-$40.1 million is inline with our unchanged estimate of $34.8 million. We continue to expect the domestic OSV market to weaken in 4Q07 and expect HOS shares to underperform the OSX if the lower-end of guidance is realized. (2) We expect domestic shallow water activity to remain at low levels and see potential for more rigs to leave the region. We also believe that domestic deepwater OSV demand could weaken in the near-term. There is one floater expected to leave the region in 4Q2007 and three in 1H2008. (3) We expect HOS to generate negative FCF through 2008 and believe that the company may need to raise capital in order to finance the newbuild program. HOS also increased the estimated cost of its MPSV newbuild program by $70 million or 27%. Valuation Hornbeck is trading at a 2008E EV-DACF/EV-EBITDA of 7.7X/7.7X, versus 6.3X/5.4X for Tidewater and 7.5X/6.1X for the Offshore Driller average. Key risks Downside risks include weakness in commodity prices and a weak global economy. Upside risks include better utilization and dayrates.