Pride International (PDE): Don't underestimate Pride

Posted Sep 13th 2007 8:30AM by Hilary Kramer
Filed under: Venezuela, Hilary On Stocks, Stocks to Buy

Having just shed its land-based oil exploration division, Pride International Inc. (NYSE: PDE) is now focusing only on offshore drilling for oil. According to a recent report from Goldman Sachs, this move puts PDE's stock price in a position to grow significantly even while the report claimed the outlook is down for offshore drilling as a whole.

According to the Goldman report, PDE's assets have been undervalued by the market, and there's a potential for backlogs to grow and increase profitability. This report expects profits, which have been growing steadily along with revenues, to grow even more over the next year as costs come down.

It's not just the Goldman analysts who have been paying attention to this stock. PDE has recently undertaken contracts to build two new drill ships, which will give the company much more range to seek out profitable drilling areas, and the company is widely seen as a potential acquisition target. Meanwhile, getting out of Latin America frees the company from dealing with leaders like Hugo Chavez or Evo Morales.

There are some risks. Commodity prices could affect the demand for oil, and cost overruns (which have hurt PDE in the past) could dampen profits. There is always also the cyclical nature of oil prices; PDE has been getting involved in more short-term contracts that could be more affected by day prices for oil, and could suffer if the prices drop.

But on the whole, the future looks bright for this Houston-based company. Given the Goldman report, which singled PDE out (along with one other company) in its industry, it wouldn't surprise me to see the Street paying more attention over the next few months. PDE announced its third-quarter earnings should be in line with investor expectations; when it delivers its results, the stock could see a nice bounce.

Type of Stock: An oil services company focused on offshore drilling.

Price Target: The Goldman report gave a 12-month target of $43, nearly 18% over its current level. The stock lost about 20% in July and early August and gained some back, but it's still a bit below its 52-week high. I think if you can grab it below $38, you could see some nice gain on this one.

Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.

Tags: featured, GS, Hilary on Stocks, HilaryOnStocks, Oil exploration, OilExploration, PDE, stocks to buy, StocksToBuy