Sunday, June 28, 2015

Seeking Alpha: Superior Energy Searches For Opportunity Amid Adversity

There is still no clear sign that the U.S. onshore energy market has bottomed, nor that global energy prices are likely to head meaningfully higher quickly. With abundant overcapacity across multiple service areas, Superior Energy (NYSE:SPN) is looking at a long, hard, and painful slog through this weak part of the cycle.

The good news is that the bad times won't last forever - at a minimum, there are too many over-leveraged service providers accepting almost any price to keep the lights on and their business models aren't viable on a long-term basis. Superior Energy has no such concerns for the foreseeable future and has instead been pursuing a strategy of preserving key customer relationships and assets while searching for M&A opportunities that could leave it as a more viable back-up choice when the Big Three become the Big Two after the Halliburton (NYSE:HAL) - Baker Hughes (NYSE:BHI) merger.

Sell-side analysts have made multiple cuts to their estimates for Superior as 2015 has gone on and I wouldn't be surprised if there are further cuts still to be made. At a more fundamental level, though, I believe these shares offer some solid long-term upside. A range of methodologies (cash flow, EV/EBITDA, and ROE/BV) supports a fair value range of $22.50 to over $30, all of which suggest upside for investors willing to hold through what will almost certainly be a few more rough quarters if not a protracted recovery period.

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Superior Energy Searches For Opportunity Amid Adversity

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