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Buy Pride International on Valuation
Our continued positive view of Pride International (PDE - Analyst Report) reflects the oil and gas driller’s attractive valuation and underappreciated deepwater drilling leverage. Divestiture of non-core assets has transformed Pride into a pure-play offshore driller. Recent contract awards and extensions have helped the company achieve a record backlog of about $9.4 billion, enabling significant earnings visibility, going forward.
Pride’s diversified portfolio of drilling assets, both in terms of rig class as well as areas of operation, provides it with a strong leverage to the current offshore drilling cycle. We expect demand for offshore drilling assets, particularly on the deepwater side, to remain robust in the foreseeable future. Our continued positive outlook for the stock reflects our view that greater appreciation of the company’s deepwater leverage will aid valuation.
Pride shares are yet to reflect the company’s growing deep and mid-water leverage, fully. Based on most conventional valuation metrics, the stock trades more inline with Gulf of Mexico jack-up drillers, than with its deepwater peers. The resulting discount at which the stock trades relative to deepwater operators makes valuation very compelling, in our view. We keep our Buy rating on the stock but raise our price objective to $55 from $48, based on 2009 P/E and EV/EBITDA multiples of 11.8x and 6.2x.
Read the full analyst report on PDE
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| Market Summary | Feb 09, 2010 21:32 pm ET |
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