- Superior Energy Services (SPN +1%) is higher after Gabelli initiates coverage with a Buy rating and $27 price target, expecting the company will generate $100M in free cash flow in 2016 despite lower drilling activities.
- The firm notes that SPN is levered to a recovery in drilling activity, and estimates that during the early part of the recovery cycle, SPN can generate 35% incremental margins on pressure pumping during the early part of the recovery cycle without the benefit of pricing and 40%-50% incremental margin with pricing.
- SPN's drilling products and services segment, which consists of the premium drill pipe rental business, generates hefty cash flow, and Gabelli says the company's ability to generate free cash flow has enabled it to endure the downturn and maintain its equipment in anticipation of the upturn.