No DELL is a fair game as well.. Tuesday is the open post split ..
So is IBM,, especially IBM ,,, we will be in early ..
Take a look at the fair value of these drillers,,
9/3/98 11:59 AM ET
Investors grabbed the opportunity Wednesday to jump into the oil service sector after Monday's battering. But, in a testament to the bear market that has this sector firmly in a downward swipe, Baker Hughes (BHI:NYSE) still is trading about 63% off its 52-week high. Baker isn't alone: Sinking crude-oil prices have rocked the energy industry, knocking nearly two years of share price growth off most oil-service stocks.
Even with Wednesday's rally, nearly a third of the sector's stocks are trading close to or below book value, or net worth per share. Throughout the mid-1980s and early 1990s, these companies routinely traded at or near book value. Investors who spotted bargains among the drilling contractors, oil service companies and rig fabricators in late 1995 and throughout 1996 saw stocks double and triple by late 1997, when troubles in Asia coincided with OPEC's decision to increase its oil production quotas.
Lately the negative momentum is as pervasive as the positive momentum was just a year ago. Investors who have hung on throughout this painful and volatile year are desperately seeking a bottom, which has proved elusive so far. The oil service index, instituted by the Philadelphia Stock Exchange in February 1997, closed at 50.29 Wednesday, about 30% below its inception level. Oil prices have had a difficult time staying above $14 a barrel. Continued weakness in crude prices is expected to depress oil company exploration and production spending throughout the coming year.
The prospect of lower exploration and production spending outweighs the bargain-basement allure of oil service stocks trading at book value for most investors. In fact, few analysts or investors will judge a stock on book value alone. But for patient investors looking for oil service bargains, these valuations can be considered a first screen by which to begin an examination of a company.
"The [oil service] fundamentals tell you how you ought to be valuing these stocks," says Scott Gill, an analyst at Simmons & Co. in Houston. Ideally, he adds, an investor should look at book value in conjunction with fundamentals. "The valuations are extremely attractive, but there are some questions to what the fundamentals are telling you."
In addition, "You really need to look at the quality of assets" in the book-value equation, says Richard Hunter, director of research at Lighthouse Capital, a Houston-based money management firm. Hunter comes up with his own adjusted book value, which values a company's assets less what they have depreciated. He then, in most cases, strips out goodwill included in a company's balance sheet from prior acquisitions. Hunter's adjustments may make an "undervalued stock into an average-valued stock," he says, but one that he may still consider for his contrarian fund.
Two drilling contractors, for example, might have similar book values, but if Driller A's rig fleet is composed of 12 newer and technologically advanced semisubmersible rigs and drillships and Driller B's fleet is composed of 25 older jackup rigs and older (or first generation) semisubmersibles, Driller A's fleet will be considered more valuable.
"Book value is an objective value," says Marty Whitman, manager of the Third Avenue Value Fund, which owns a position in Nabors Industries (NBR:NYSE). "It doesn't give you [total] value." What book value does, he says, is give a measure of how many resources a company has to work with.
A Value Inflection Point?
Company
Ticker
Sept. 2 Close
Per-Share Book Value
Market Cap (millions)
Baker Hughes
BHI:NYSE
19 1/8
16.43
$6,100
Bayard Drilling
BDI:AMEX
4 1/4
9.96
75
BJ Services
BJS:NYSE
13 3/4
13.86
1,000
Cliffs Drilling
CDG:NYSE
15
15.36
233
Helmerich & Payne
HP:NYSE
19 7/16
16.76
918
Hvide Marine
HMAR:Nasdaq
7 5/16
15.66
113
Input/Output
IO:NYSE
9 15/16
9.32
450
IRI Int'l
IIR:NYSE
5 3/16
5.23
229
Key Energy Group
KEG:NYSE
7 3/16
7.16
126
Lone Star Tech
LSS:NYSE
9 1/16
10.19
218
Maverick Tube
MAVK:Nasdaq
5 3/4
5.87
83
Mitcham Industries
MIND:Nasdaq
6 1/2
8.04
58
Nabors Industries
NBR:AMEX
13 3/16
7.91
1,300
National Oilwell
NOI:NYSE
9 1/16
6.24
457
Noble Drilling
NE:NYSE
12 1/4
9.5
1,500
Offshore Logistics
OLOG:Nasdaq
9 3/4
13.1
208
Parker Drilling
PKD:NYSE
4 1/8
4.93
312
Pride Int'l
PDE:NYSE
8 1/4
14.52
401
Seitel
SEI:NYSE
9 3/8
9.76
207
Stolt Comex Seaway
SCSWF:Nasdaq
9 3/8
7.13
783
Trico Marine Services
TMAR:Nasdaq
6 1/32
13.92
121
UTI Energy
UTI:AMEX
7 3/8
9.16
113
Veritas DGC
VTS:NYSE
16 1/2
13.5
371
Source: Baseline, TSC
Here's a list of a few companies trading near or under book value in the sector:
a.. Baker Hughes, up 1/16 Wednesday to 19 1/8, is trading at about 1.2 times its book value of $16.43.
Analysts say that in a worst-case scenario, oil company spending will fall 15% in 1999, dimming the earnings growth prospects for the oil service sector.
But a return to equilibrium in the crude oil market should bring a slow recovery to oil prices, giving oil companies the cash flow they will need to gear up drilling projects to meet their production goals. Baker, with its recent acquisition of Western Atlas, will be well-positioned to take advantage of increased oilfield activity.
b.. Marine supply boat companies, including Trico Marine Services (TMAR:Nasdaq) and Hvide Marine (HMAR:Nasdaq), have been pummeled in recent weeks on concerns over the outlook for their market. These companies operate the boats that transport materials, drill pipe, food and in some cases, personnel, to the offshore rig community. A slowdown in this market has idled dozens of boats and driven dayrates for this segment down to an average of $4,650 per day from over $8,000 just a few months ago.
HMAR closed at 7 5/16 Wednesday, down 1/4. It is trading at just under half of its book value of $15.66. Trico Marine, which closed at 6 1/32 Wednesday, trades at about 40% of its $13.62 book value.
c.. Land-based contract drillers in January were one of the first segments in the oil service sector to be hit by the downturn in oil prices. Several of these companies, including Bayard Drilling (BDI:NYSE) and UTI Energy (UTI:AMEX), have been treading at book value for months, indicating that investors have little faith in the earnings power of the companies' assets.
Land drillers are among the riskiest stocks in the sector because of reduced earnings visibility. Aggressive pricing competition among the onshore drilling contractors trying to establish or improve market share will continue to drive rental rates for land rigs down.
Nabors Industries is trading at about 1.4 times its book value of $9.91. Whitman at Third Avenue says even the $9.91 figure is undervalued, since Nabors acquired many of its assets at below-market prices.
d.. Mitcham Industries (MIND:NYSE), jumped 3/4, or 13.6%, Wednesday to 6 1/2, yet it is still well below its book value of $8.04. The seismic equipment leasing company has virtually no debt and very little overhead, since it does not actually operate seismic crews. Yet the stock was hit hard when it filed to report its fourth quarter and fiscal 1998 earnings later than expected. In recent weeks its CFO resigned. Analyst Ed Maran at A.G. Edwards likes Mitcham's high cash flow generation and estimates MIND will earn $1.16 in the fiscal year ending Jan. 31, 1999, about 7 cents below consensus estimates. He has a buy rating on the stock; his firm has not performed underwriting for Mitch |
