If you’ve been a regular reader of this blog, you’ll know that one of the oilfield services stocks we’ve liked for quite some time is TTES. You can read our past analyses, by clicking here.

Our last post on the stock, was nearly a year ago, and we think it’s finally time for an update, since bullish speculation in the shares could heat up in the coming months.

Why is that? Well TTES is back in the secondary game at a very opportune time. Read the press release here.

Previously, we became bearish on the company whenever they attempted this type of secondary. But this time, the situation is quite different, primarily because one of TTES’s larger competitors, HYDL recently received a buyout offer by Tenaris at a huge premium. The purchase price for HYDL was nearly 14X EV/ 2006 EBTIDA and 25X 2006 EPS.

TTES is currently trading at about $24, giving it a valuation of about 8X EV/2006 EBITDA and 16X 2006 fully diluted EPS. TTES’s valuation has historically been depressed due to the huge ownership position by First Reserve Fund. However, with the HYDL takeover, it seems to us that TTES will have no trouble placing the secondary this time around and completely eliminating the First Reserve position in the stock.

Once First Reserve is gone and the shareholder base is more diverse, it seems to us that TTES will get a valuation on par with current industry multiples, such as given to HYDL in the recent takeover. The trigger for a higher price, could be coverage by Wall Street. Not one Wall Street analyst follows TTES right now, but that could change soon. Bear Stearns is the lead underwriter for the current secondary. We think Wall Street analysts could easily justify a $40 stock price for TTES, based on the current outlook.

As for downside risk, we think it’s limited here given the M&A in TTES’s sector and given the company’s strong business outlook. Of course, there is always the proverbial oil commodity risk, but are lower oil prices really a risk at this point with summer driving season just a few months away? The stock may prove volatile until the secondary is placed, but thereafter it should begin to trade normally and the valuation could rise substantially.

Disclaimer:

We own shares in TTES. This site may include market analysis and we may own shares in the stocks mentioned in our reports. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.