2 Cheap Drillers Getting New Love From Dahlman Rose

Includes: NBR, PDS
by: Bret Jensen

Dahlman Rose came out with an important upgrade of the oil services industry late yesterday. I think this will provide important support to this sector. Dahlman Rose cites several factors behind its view.

  • It projects North American E&P revenues will rise over 10% in 2013 which should mean at least a 5% increase in oil services spending based on historical norms.
  • The analyst firm also says the recent rise in natural gas to $3.85 mmbtu is hugely positive to the E&P sector.
  • Finally, it sees rig utilization rising to 85% by yearend 2013 compared to the current 77% utilization.

Here are two oil services firms highlighted in the report that I think are good value plays here as well.

Nabors Industries (NYSE:NBR) is the world's largest land drilling contractor owns and operates approximately 500 land drilling and approximately 750 land workover and well-servicing rigs in North America.

4 reasons NBR provides solid value at under $14 a share:

  1. The stock is selling at just 68% of book value and it has an A- rated balance sheet.
  2. The median price target on NBR is $17 a share by the 19 analysts that cover the stock. S&P has a "Buy" rating and an $18 a share price target on the shares.
  3. The stock is selling at the bottom of its five year valuation range based on P/E, P/S and P/CF.
  4. NBR has a minuscule five year projected PEG (.49) and sells for less than 4 times operating cash flow.

Precision Drilling Corporation (NYSE:PDS) provides contract drilling as well as completion and production services to oil and natural gas exploration and production companies. As of year end 2011, the company operated 188 land drilling rigs in Canada and 143 land drilling rigs in the United States.

4 reasons to buy PDS at just over $7 a share:

  1. The stock is selling near the bottom of its five year valuation range based on P/B, P/S and P/CF.
  2. Like Nabors, PDS is selling for less than book value (87%) and has a very small five year projected PEG (.38).
  3. The mean analyst price target is north of $9 by the 7 analysts that follow the shares.
  4. The stock is selling at around 3x operating cash flow and just over 9x forward earnings.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NBR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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