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

To: monu who wrote (41963)	4/9/1999 12:52:00 PM
From: drsvelte	Respond to of 95453

From DLJ research today. . . OILFIELD SERVICES 04/08/99 Rating: Outperf. Change: None How Will the Recovery Unfold? Oilfield service stocks have had a meaningful pullback of 15.6% since April 29th, after their dramatic rise of 51% in March. This pullback has been caused by the growing realization that oil prices may be a little ahead of themselves near-term and that oilfield service earnings are unlikely to show much positive momentum until Q3. At this juncture, investors seem to be quite confused about how this recovery will unfold and when it is appropriate to invest more heavily in the group. In our opinion, the oilfield service recovery will be a stair-step recovery, with not all stocks will performing equally well on each step. We believe that investors should use this pullback to overweight oilfield service stocks with a particular emphasis on earlier cycle stocks. Among the large caps, the purest play on it is BHI, despite a slower recovery in seismic. Among the mid/small caps, our favorites are BJS, FLC, GW and WFT. R&B FALCON (FLC: $6.625)#+ 04/08/99 Resignation of CEO Will Not Affect Upside Drivers Earnings Per Share Old New P/E Ratios (FY:Dec.) 2000E $1.05 $0.55 12.0 1999E 0.35 (0.06) -110.4 1998A 1.10 6.0 Rating: TOP PICK Change: None 12-Mo. Target: $16 R&B Falcon announced yesterday that its President & CEO, Steve Webster was resigning and Paul Loyd, the Chairman of the board, will assume his duties. This is obviously a surprise for investors, given that Steve Webster has been the architect of the growth of Falcon from a small start up in the late 1980's to its merger with R&B in 1997 and its current shape. However, we believe this came about because the board felt that the days of aggressive growth for Falcon, which Steve Webster had engineered, were over, and the next phase involved digesting this growth, reducing leverage and running the business as a more traditional drilling contractor. Paul Loyd was formerly the CEO of Reading & Bates and obviously has experience at running a rig company. While we are disappointed to see Steve Webster go, we believe that the key reasons that investors should continue to aggressively buy FLC at this juncture are because the assets that he has put into place position the company for significant earnings leverage from the shallow water side and growth from the start-up of deepwater newbuilds/conversions. Additionally, the recently completed debt offering solves the liquidity issues at the company and provides additional upside to the stock. We continue to rate FLC a Top Pick with a 12-month target price of $16.