Goldman Sachs Analyzed E&P Companies Patterson-UTI Energy and Transocean
In a report published Monday, Goldman Sachs analyst Wagar Syed commented on the 2014 U.S. land/service recovery influence on E&P companies. Syed upgraded Patterson-UTI Energy Inc. (NASDAQ: PTEN) from Sell to Neutral and downgraded Transocean Ltd. (NYSE: RIG) from Neutral to Sell.
Goldman Sachs noted that Patterson shares have underperformed the OSX since the downgrade. The analyst reported that the 2014 EPS consensus has been correcting, in line with Syed's estimates. He further added, "Finally, we are getting more positive on E&P spending on US land and expect it to increase 6 percent in 2014. As E&P spending increases next year, and rig count starts to pick up, we should see PTEN's trading multiple appreciate." The analyst's EV/ ENITDA target multiple consequently increased from 4.0x to 4.5x.
Syed downgraded Transocean based on the new PT of $50 from $53. Goldman Sachs noted that Transocean has outperformed, "early signs of utilization/dayrate weakness in the deepwater market are emerging," and the company has contract renewal risk.
In addition, RIG is facing structural challenges and is a more expensive stock comparatively. The analyst expects 5th generation rig rates falling from $550K-$600K/day range to $480-$530K/day range and the resulting multiple contraction.
Patterson and Transocean closed at $22.28 and $49.50, respectively.
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