What's Not to Love About Noble?

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For companies like Schlumberger (NYSE: SLB  ) and Halliburton (NYSE: HAL  ) , 2008 set a high-water mark for earnings that won't be easily surpassed. Last year saw these oil service companies' pre-tax earnings drop 43% and 47%, respectively. For Noble (NYSE: NE  ) , however, the only place you'll find a high-water mark is on the hull of one of its offshore drilling rigs.

The offshore drilling contractor notched a new record in 2009, with pre-tax earnings lifting 5% to $2 billion for the year. The fourth quarter capped off this fine year with contract drilling margins riding high at 70%, and rig utilization at 83%. Per-share net income came in at $1.72, which was well ahead of analyst expectations.

Importantly, Noble's accounting earnings are backed up by solid cash generation; in this case, $2.1 billion for the year. Of that amount, $1.4 billion was directed to capital expenditures, while the rest either fattened up the company's already pristine balance sheet or was returned to shareholders through buybacks and dividends.

The performance here has been rock-solid, and I'm not surprised to hear the CEO express frustration with the share price. The stock sports a trailing price-to-earnings ratio of 6.55, which would suggest that Noble is poised on the precipice of a cyclical downturn. If 2009 couldn't usher one in, it's hard to see how 2010 could do so.

One industry forecast has capital spending rising by 12% this year, with a 16% bump in spending by national oil companies (NOCs) like Petrobras (NYSE: PBR  ) and Saudi Aramco. Between the reasonably strong oil price and the ongoing success of explorers like BP and Anadarko Petroleum (NYSE: APC  ) , it's hard to see Noble or peers like Ensco (NYSE: ESV  ) and Transocean (NYSE: RIG  ) having anything other than a pretty solid year ahead.

Noble repurchased $187 million of shares at an average price of $34 last year. While the shares are by no means expensive today, the mid-$30 level would be a fantastic point to fill out a position in this regal driller. The shares tend to be more volatile than the results here, so I wouldn't be at all surprised to see such prices offered up later this year.

Petrobras is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 28, 2010, at 4:06 PM, dab007 wrote:

    buy buy buy ne

  • Report this Comment On January 28, 2010, at 4:08 PM, dab007 wrote:

    buy buy buy ne

  • Report this Comment On January 28, 2010, at 4:19 PM, dab007 wrote:

    i think the only way it will hit mid thirties is if oil goes below $65 a barrel if you dont think that will happen buy now really can you see this stock in the near term with a pe less than 6 i doubt it. i would and did buy now.

  • Report this Comment On January 28, 2010, at 8:01 PM, DrBob66 wrote:

    What's not to lve about NE? How about the fact that, for the past twelve months, this stock hasn't been able to trade at a multiple higher than 7 for more than a few minutes? Or, that even after a 7% earnings beat, the stock is till down 2% for the day?

    The problem, as I see it, is that most analysts don't expect NE (or any of the other drillers, for that matter) to earn MORE in 2010 than they did in 2009. For NE, I see an average estimate of $5.52/sh for 2010..and $5.43/sh for 2011. Seeing as they made $6.40/sh in 2009, I don't see any earnings GROWTH here. Maybe THAT'S why the stock is trading at a P/E of less than 7.

    In addition, ther'e a HUGE range in analyst's estimates for 2010 (anywhere from $4.60 to $6.18)...and an even bigger range ($3.86 to $8.05) for 2011. How on earth is anyone supposed to tell if their earnings are going to GROW in the future? The answer is: there is no way to tell. Maybe they will, maybe they won't.

    As is the case with much of the stock market right now, buying NE stock right now is just a GAMBLE...pure and simple. Do you think the price of oil will go UP...or DOWN? I dunno...does ANYONE have any idea what the "fair value" of a barrel of oil will be in the future? No. In fact, I don't even think anyone can tell what it will be next month...or next week, even. In fact, it's doubtful that even TODAY'S price is really a "fair value"...because the market is so volatile (and probably manipulated) these days that it's really just a guessing game.

    Yeah, great time to be an investor. Step right up and place your bets, folks.

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