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"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." ― Winston Churchill

It is hard to find companies with substantial growth prospects in a world with tepid global demand that has several engines (Japan, Europe) actually contracting. One sector that does provide growth visibility is energy, especially some of the offshore drillers. These firms are bringing new capacity online as producers are going farther offshore to bring new oil supplies to market. One of my favorite selections in this space is Noble (NYSE:NE) which I think is at least 30% undervalued at the current stock price.

Noble Corporation is as an offshore drilling contractor for the oil and gas industry. The company offers contract drilling services for oil and gas wells.

7 reasons NE provides growth and value at $34 a share:

  1. Morgan Stanley initiated the shares as an "outperform" earlier this week. The firm sees at least 50% upside just from its concentrated focus in the Wattenberg, one of the highest return plays in the United States.
  2. Earnings are expanding rapidly. Noble made just $1.31 in FY2011 but is on track to make $2.25 a share in FY2012. Analysts project the company will earn over $4 a share in FY2013.
  3. Revenue growth is also impressive. Noble will post better than a 30% revenue gain this fiscal year and analysts expect better than a 25% sales increase in FY2013.
  4. The stock is cheap at 8 times operating cash flow and just 13% over book value.
  5. The 32 analysts that cover the stock have a $47 median price target on the stock, some 35% above its current price. Credit Suisse is even more bullish with a $55 price target and an "outperform" rating on the shares.
  6. The company has 16 jackups rolling off contracts in high demand areas in the near term. It should be able to book better day rates given current demand on the new contracts.
  7. Noble has an A- rated balance sheet and yields 1.6%.

Bottom Line: Noble offers significant growth with a solid balance sheet at a cheap valuation. My price target is $44 or 11 times a conservative projected FY2013 EPS of $4 a share.

Source: Noble: Driller Too Cheap By 30%