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

To: mph who wrote (28427)	8/27/1998 12:57:00 AM
From: VegasMan	Respond to of 95453

This was presented over at the GLM thread by Greg Jenkins : Recent development 8-21-98 We are revising our earnings estimates and price objective for all of our stocks within the oilfield services sector. While our near term outlook continues to be cautious in the face of still lackluster oil prices, our long term outlook remains positive. We believe that the postive secular trends for this industry remain in place and that the long term catalysts for the return to normalized oil price levels are also in place. Ultimately, we believe the "significant value" within this sector will be recognized and that negative sentiment towards the group will reverse as the industry environment improves. The persistent weakness in commodity prices continues to overhang the near term strength and fundamentals for the oil services industry. As we have outlined on prior occasions short term volatility in commodity prices has no direct bearing on the earnings and operations of these companies, but a sustained long term decline does eventually affect earnings and operations. We have obviously reached the point of seeing a sustained decline in commodity prices. While we expect oil prices will ultimately strengthen and reach their normalized levels in the $17-19 dollar per barrel range, we are conservatively assuming the oil price weakness will continue and that operations will slow accordingly. Across the board, we are fairly aggressively reducing earnings estimates for all of our companies. Additionally, we are also conservatively contracting our assigned multiples (used to determine price objectives) for each of our companies until the energy environment improves. Upon seeing a stronger overall energy climate we will again review our assigned multiples, objectives and earnings estimates. In the meantime, a conservative approach is the most appropriate action. Most reductions range from 10 to 30% depending on the company's future exposure to oil and gas prices. Accordingly, price objectives for all of the companies have also been revised downward. Despite these revisions we believe that the market has more than fully discounted the weakened oil prices and lower earnings into the current stock prices. Even at the revised earnings levels 1999 multiples average in the 6-8x range. Current multiple for the sector, are on average, less than half of the market's multiple and below historical ranges for the industry. We believe the severity of the stock price declines within this sector has a greater basis in the psychology towards the sector versus what we have seen in fundamental deterioration. As oil prices remain near their historical lows we would continue to exercise caution over the near to intermediate term for we do not believe the rocky ride is over, although for the long term we continue our positive stance on the sector. Thus while we believe that further price and earnings downside is always a possibility, the long term (12 months) upside for the sector could be significant. A G Edwards has a price target of $24 with a buy/speculative rating.