Monday, October 23, 2006

Calls of Note Part 5

- Bear Stearns notes they view Noble's (NYSE:NE) achievements in cost management in the third quarter as a differentiating factor compared to many other offshore drillers.

The company had previously sailed through the second quarter with less unexpected downtime and shipyard delays than most of its peers, and it continued to keep contract drilling expenses in check in 3Q06.

Due in part to contract provisions requiring operators to pay for certain instances of downtime, the company is also expecting to benefit from a reduction in unpaid shipyard days (projected to decline by 29% in 2006 and by approximately 25% in 2007). Firm is raising their 2006 EPS estimate to $5.28 from $4.95 mainly to reflect reduced 4Q06 cost expectations. They maintain their 2007 EPS estimate at $9.65 and are introducing 2008 EPS estimate at $13.50.

They continue to rate Noble Outperform with a 2007 year-end price target of $95. While a leveraged buyout is unlikely for now, the fact that NE is undervalued (at 7.1x estimated 2007 EPS and 5.1x estimated 2008 EPS) is hard to deny.

Noble's strategy of reducing its shallow water Gulf of Mexico exposure and increasing its
deepwater drilling focus has positioned the company to maximize its earnings potential in the current business cycle. On a 2007 EV/EBITDA basis, Noble trades at a 5.1x multiple, a discount to Transocean's 6.6x multiple and in line with Diamond Offshore's 4.5x and GlobalSantaFe's 5.2x.

Notablecalls: Expect to see some buy interest in NE today.

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