Goldman Turns Bullish On CGG Veritas, Says Seismic Provider Has Undergone A 'Rebirth'

CGG SA (ADR) CGG is a French company that provides offshore and onshore seismic data services to oil and gas customers. After maintaining a bearish stance for nearly two years, Goldman Sachs said the stock is a Buy after the company's "rebirth." 

The Analyst

Goldman Sachs' Maria-Laura Adurno upgraded the French CGGVeritas equity from Sell to Buy with a price target lifted from the U.S. dollar equivalent of $3.14 to to $3.16. 

The Thesis

A Sell rating on CGG's stock has been in place at Goldman since April 7, 2016, but a bullish stance is now justified for four reasons, Adurno said in the upgrade note: 

The company's financial restructuring concluded in late February, which "significantly derisked" the balance sheet.

Goldman forecast "clear signs" of cost deflation, which benefits CGG, as it can result in potential improvements in seismic market conditions, the analyst said. Several large projects could return to the lower part of the cost curve and result in at least a moderate revival of project sanctions.

CGG should benefit from improving activity and cost reductions, which could lead to a continued recovery in the company's revenue after 10-percent growth in 2017, the analyst said. This should lead to higher levels of profitability, Adurno said.

The seismic company's momentum through 2019 should result in free cash flow generation, even after post-debt interest payments, the analyst said. 

Price Action

Shares of CGG were trading higher by 5 percent on its NYSE-listed issue and by 3 percent on the Paris exchange.

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