further CLB analysis, fwiw...
APRIL 20, 2011/ RBC
Core Laboratories (NYSE: CLB)
Outperform Average Risk
Conference call review
We rate CLB Outperform due to the company's technology-focused suite of products/services, leading market positions, leverage to oil, and superior returns.
EPS estimates. Increasing our 2011 estimate to $3.67 from $3.61 to account for 1Q upside ($0.03/share) and lower non-cash interest expense related to the company's convertible notes. For 2012, our new estimate of $4.76, up from $4.71, is driven by 18% revenue growth and an incremental margin of 42%. [again, more bullish than Pickering]
Raising price target to $110, or 23x our new 2012 EPS estimate. Target multiple is slightly above the high end of the company’s five-year historical band of 15-22x, which we believe is appropriate given its positioning and leverage to an expected acceleration in international activity later this year and in 2012.
Guidance for 2011 unchanged. CLB maintained full-year guideposts of $890-910mn revenue, ~30% operating margin, and $3.55-3.60 EPS - a slight positive, in our view, given 1Q11 downside relative to its original expectations. In addition, as our estimate suggests, we believe the EPS range will prove conservative.
International set to accelerate in 2H11. Inquiry levels are giving CLB confidence that activity will ramp up as the year progresses. Areas of relative strength include the Middle East, South America, and Asia Pacific. Unrest in North Africa and the Middle East has had a very minor impact on results to-date, and on the conference call CLB said that if conditions do not deteriorate there could be upside to its forecasts.
U.S. should rebound from the weather-impacted 1Q, specifically the revenue/margin declines in Production Enhancement. On the call, the company noted continued market penetration for its new HTD Blast with the system on 19% of all horizontal oil shale wells in the U.S. in 1Q11 (17% in 4Q10). Deepwater GOM should also be a positive going forward with CLB saying that it expects to begin working on projects in late 2Q11 (since Macondo, the GOM has been costing quarterly results ~$0.02-0.03/share).
Valuation and Price Target
CLB is currently trading at 21.2x consensus EPS for 2012 (20.2x our new estimate). Since 2006, shares have traded at an average out- year multiple of 18.4x with a one standard deviation band of 15x to 22x. Our price target multiple of 23x is above this range, which we believe is appropriate given the company’s positioning and leverage to an acceleration in international activity that we expect to occur later this year and in 2012. In addition, the target multiple is more in line with the range that has been established since mid- 2009, or 18-25x (see LHS chart below), which we believe has been helped by the mid-cap void left following the acquisitions of Smith International and BJ Services.
Valuation
Our 12-month price target is $110, or ~23x our 2012 EPS estimate. Target multiple is slightly above the high end of its five-year historical range, which we believe is appropriate given the company's positioning and leverage to an expected acceleration in international activity later this year and in 2012.
Price Target Impediment
The major risks to our price target include reduced drilling activity, lower commodity prices, and global oil/natural gas supply/demand imbalances.
