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

To: Dennis Roth who wrote (72)	5/9/2008 11:57:25 AM
From: Dennis Roth	Respond to of 111

Hornbeck Offshore Services (HOS): Continue to see better risk/reward in other names; maintain Sell - Goldman Sachs - May 1, 2008 United States What's changed Hornbeck reported 1Q08 EPS of $0.86, below our estimate of $0.94 and consensus of $0.92. EBITDA was 7% lower than our estimate driven by lower OSV dayrates and weakness in the Tug and Tank barge segment. We adjusted our 2008E EPS to $3.77 from $3.97 primarily due to decreased assumptions for the Tug and Tank Barge segment. Management reaffirmed 2008 EBITDA guidance of $220-240mm (GS: $222mm) and EPS of $3.68-$4.16 (GS: $3.77). Our 12-month price target of $44 is unchanged (7.5X 2009E DACF). Implications (1) We maintain our Sell rating on HOS, but view our rating as relative to our coverage group given the 4% absolute downside to our price target. (2) While we like HOS' deepwater exposure, it has been our belief that the 10 conventional OSVs dilute the fleet and do not deserve the same premium multiple as HOS' other assets. The impact of these low specification boats became clearer in 1Q08 results as OSV operating income was 14% below our estimate. (3) We like management's decision to move two OSVs to Brazil and further diversify into other specialty services. This decreases HOS' dependency on US Gulf of Mexico OSV supply/demand dynamics which we view as less favorable in the near-term. However, HOS' new generation OSV contract coverage of 54%/30% in 2008/2009 should limit potential downside. (4) Although we see less risk in the Tug and Tank Barge segment given management's lowered guidance, it constitutes 17-20% of EBITDA and may serve as a headwind for the shares. Valuation Hornbeck is trading at 8.5X/8.5X 2009E EV-DACF/EV-EBITDA versus 6.9X/5.9X for Tidewater and 7.2X/5.9X for the offshore driller average. Key risks Risks include capacity additions or a decline in commodity prices.