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March 24, 2007

Stock Pick: GlobalSantaFe

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GlobalSantaFe is a international drilling contractor that provides offshore drilling services to the world’s leading oil and gas companies. This company specializes in contract drilling which makes up 80% of their business as well as providing turnkey services. This company has an excellent international presence which protects it from regional specific downturns.

With great financials compared to its competitors there are five specific reasons that GlobalSantaFe will outperform its competition in the next 12 months. To begin, for the current fiscal year, GlobalSantaFe’s tax rate guidance has been reduced to 12% from 13%-14%. This is a result of restructuring a subsidiary and higher international sales. Secondly, GSF has initiated a 2 billion share rerpurchase program currently in process in which $900 million can still be repurchased. GSF’s established presence in Africa has also given the company security against the underperforming Gulf of Mexico market. There are also consolidation efforts by top management which would enable GSF to take advantage of economies of scales and expand their international presence. Lastly, contract drilling rates have been increasing over the last 6 months and many analysts feel that this trend is liking to continue in the near future.

The current recommendation for GSF is a buy with a current price target of $74.

Posted by jcip at March 24, 2007 01:17 AM


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