Citigroup Downgrades Superior Energy Services On Dwindling Acquisition Theme, Weak Q3

Shares of Superior Energy Services, Inc. SPN tanked more than 8 percent on Tuesday following the lower-than-expected third-quarter results.

Citi Research downgraded the stock from Buy to Neutral and reduced the target price from $22 to $19. The analyst's changes were due to the waning acquisition thesis and weak Q3 numbers.

Analyst Scott Gruber noted that revenue from Gulf of Mexico, which generated $73 million revenue, came below his estimation by 23 percent. This is substantial considering other drillers missed his revenue estimate by 17 percent. Similarly, revenue from international segment missed his predictions by 9 percent. This led to missing EBIT margin by about 11 percentage points.

Related Link: Superior Energy Reports Q3 EPS $(0.75) vs. Est. $(0.57), Rev. $326.2M vs. Est. $357.3M

However, the brokerage pointed that land and revenue of $170 million beat his estimation by 2 percent and delivered 8 percent sequential growth. This appears in line with the trend North American service providers disclosed last week.

While pointing out that there is less possibility of an acquisition thesis, even considering equity financing, Citi commented, "The drag from offshore drilling/completion is likely to linger, with the latest results revealing the magnitude of the impact. Our target price of $19 is a blend of an 8.5x multiple on our 2018 EBITDA and a 1.5x book value multiple on our 2017 year-end equity."

At last check, the stock was down 14.93 percent at $15.78.

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