Focusing on the recovery; raising PTs for diversified service
companies. We shift our valuation basis to 2011, and away from
Normalized, in order to focus on the recovery from the 2009-2010 trough.
We sense that 2011 is likely the beginning of an extended upcycle, which
does create a valuation case for more upside for the segment, even if upside
surprise potential is more muted than in past cycles. We raise our PTs an
average of 15%.
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An offshore and international land-led recovery. Despite an expected
steady rise in service intensity in U.S. land, Credit Suisse Energy’s more
conservative U.S. gas view points to a lackluster recovery in North America.
Offshore becomes that much more significant (finally!) – we estimate
offshore comprises 35% of revenues and 42% of segment EBIT in 2011
versus 32%/~29% in 2008.
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Preferences remain HAL and WFT. Although this segment is overhung by
high relative multiples on what appears to be a sluggish 2010, we expect
stock picking before year-end 2009 to refocus on medium term growth and
to benefit the fastest earnings growers in this segment. We believe that top
pick HAL and also WFT have positioned themselves to grow faster than
“trend” (equivalent to gaining market share, see Exhibit 1).