Smith Int'l Adjusted, Still a Buy

Smith International Inc.'s (SII - Analyst Report) 4th quarter earnings, though weaker-than-expected, were above year-earlier levels, driven by gains from its August acquisition of W-H Energy's operations. Revenue and earnings grew 33% and 31%, respectively, on the back of improved performance from all three segments.

Looking ahead, the company's strong cash flows, low capital needs, and diverse product portfolio with a growing international presence should help it weather the current downturn better than most of its peers. Our Buy recommendation remains unchanged, though we have lowered our estimates, and our current target price is $45.00 per share.

Smith International, one of the global heavyweights in drilling services, will get access to W-H Energy's world-class products for LWD [logging while drilling], MWD [measuring while drilling], rotary steerable systems, directional drilling and downhole drilling motors, as well as a highly skilled cadre of directional drillers and technical support personnel to operate these systems. Additionally, the W-H transaction will add business lines to Smith's already strong product portfolio, which has a more service orientation.

Read the analyst note on SII