Thursday, September 13, 2007

Kramer Agrees with me on Pride International (PDE) - no, not Cramer... Kramer!

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My crack research team of 1 had uncovered Pride International (PDE) which I have been watching for about a year. I had some earlier blog comments about the name here. With my research budget of $0, I am unable to access Goldman Sachs (GS) research reports, but thankfully Hilary Kramer of AOL is filling us all in. (for free)
  • Having just shed its land-based oil exploration division, Pride International Inc. (NYSE: PDE) is now focusing only on offshore drilling for oil. According to a recent report from Goldman Sachs, this move puts PDE's stock price in a position to grow significantly even while the report claimed the outlook is down for offshore drilling as a whole.
  • According to the Goldman report, PDE's assets have been undervalued by the market, and there's a potential for backlogs to grow and increase profitability. This report expects profits, which have been growing steadily along with revenues, to grow even more over the next year as costs come down.
  • PDE has recently undertaken contracts to build two new drill ships, which will give the company much more range to seek out profitable drilling areas, and the company is widely seen as a potential acquisition target.
  • Meanwhile, getting out of Latin America frees the company from dealing with leaders like Hugo Chavez or Evo Morales.
  • There are some risks. Commodity prices could affect the demand for oil, and cost overruns (which have hurt PDE in the past) could dampen profits.
  • There is always also the cyclical nature of oil prices; PDE has been getting involved in more short-term contracts that could be more affected by day prices for oil, and could suffer if the prices drop.
  • Given the Goldman report, which singled PDE out (along with one other company) in its industry, it wouldn't surprise me to see the Street paying more attention over the next few months.
  • The Goldman report gave a 12-month target of $43, nearly 18% over its current level. The stock lost about 20% in July and early August and gained some back, but it's still a bit below its 52-week high. I think if you can grab it below $38, you could see some nice gain on this one.
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Takeaway: All this sounds vaguely familiar ;) But it's nice to see Goldman focus on the name - Goldman rocks. (by the way Goldman approaching 50 day moving average resistance right above $190). However, Hillary teased us by not saying what the OTHER company in the industry Goldman is touting.... oh Hilary.

Pride International (PDE) is actually the fund's 2nd biggest position on the long side, basing here in the $36-$37 range for past 2 weeks. Hmm, makes me want to buy some more. I think I will! Remember, you have to be picky with these drilling names - the land drillers (more tied to natural gas) have STUNK for a while; I suppose if natural gas ramps you can trade them but natural gas has remained cyclical while crude has basically either been neutral or up the better part of 3 years. Also there are signs of overproduction and price pressure in the jackup rig area (shallow water) Stick to the deep sea oil drillers as this the one area of pricing power....

Long Pride International in fund; no personal positions

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