HOLD Weatherford International Ltd. (WFT)

sleepyeyeegyptianOil and Offshore

Nov 8, 2013 (4 years and 2 days ago)

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Investment Management Program



HOL
D




Weatherford International Ltd. (WFT)





Seth Weir

[Date of Presentation]

Energy

Oil & Gas Equipment & Services

Large Growth

13.9 Billion

[Portfolio Weight]

Morningstar Rating



Key Stock Statistics







2004
2005


2006


2007


2008


TTM (
YTD)

Total Return %

41.1 15.4 64.2
-
68.5 4.7


+/
-

Market



38.1 1.8 60.6
-
30.0 2.9


+/
-

Industry



---

---

---

---

---

Return on Assets %

6.26 6.62 9.58 9.18 9.13 3.62

Return on Equity %

10.97 10.41 15.14 15.77 17.26

7.02


Net Margin %

10.54 10.79 13.62 13.67 14.10 7.00


Asset Turnover

.59 .61 .70 .67 .65 .52


Financial Leverage

1.67 1.51 1.64

1.78 1.99 1.94

Operating Margin %

13.3 13.1 20.4 20.7 20.6 12.7

Revenue Growth %

20.9 38.4 51.8 19.1 22.6

Operating Income %

47.6 37.0

135.4 21.2 21.8

EPS Growth %

115.6 25.1 72.1 24.1 24.8

Dividend Growth %

Valuation Analysis




2004
2005


2006


2007


2008


TTM (
YTD)

P/E



21.8 24.6 16.5

21.8 5.5 21.2
P/B



2.1 2.2 2.3 3.1 0.9 1.4

P/
S



2.4 2.6 2.3 3.1


0.8 1.5

P/FCF



15.2 22.3 13.7 27.3 6.8

16.6
PEG Ratio






1.4

Dividend Yield %

Cross Sectional Data


Current



5 Yr Avg


Industry


Market

Return on Assets %


3.81 8.80 5.84 4.29

Return on Equity %


7.02 14.87 12.09 10.99

Asset Turnover



.52 .55 .49

Financial Leverage

Gross Margin %


30.45 34.49 21.34 32.59

Operating Margin %


12.68

18.83 6.43

17.39

Net Margin %



7.35 13.47 1.98 8.86

Revenue Growth %



EPS Growth %


-
53.46 47.61 15.04 69.09

Dividend Growth %




1.39 2.36

Earnings Growth Estimates %

Company



Industry



Market

Current Quarter


-
61.7


Next Quarter


41.6

Current Year


63.8 11.2 25.0

Next Year



67.5 27.4 26.1

Next

5 Years


26.0 7.5 0.0

Past

5 Years



-
0.1 14.8
-
2.7

Industry Peers
Return % (YTD)


P/E

ROE %

EPS %

Schlumberger Ltd.


-
0.5 25.61 18.78
2.58

Diamond Offshore Drilling Inc.

-
3.6 9.61 40.02 10.02
Transocean, Inc.



5.5

8.47 18.21 10.52

















Current Price

Fair

Value

52

W
k Range

$
18.86


$

17.00



$
9.08
-
23.75


Business

Weatherford International, Ltd. is a large
-
cap stock that operates in the oil and gas
equipment and services industry lo
cated within the energy sector. WFT provides equipment
and services used for the drilling, completion, and production of oil and natural gas wells
worldwide. The company was founded in 1972 and is based in Houston, Texas.
Weatherford International has o
perations in more than 100 countries with more than 800
locations throughout the world. WFT employs more than 40,000 people worldwide.

They
provide a very diverse and unique business offering an array of services. WFT’s product
offerings can be grouped i
nto 10 service lines:
artificial lift systems, drilling services, well
construction, drilling tools, completion systems, wireline and evaluation services, re
-
entry
and fishing, stimulation and chemicals, integrated drilling, and pipeline and specialty
serv
ices. The company designs and manufactures a variety of drilling tools and other
pressure
-
control equipment. They operate under four segments: North America, Latin
America, Europe/West Africa/Commonwealth of Independent States, and Middle East/North
Afri
ca/Asia. In July 2008, WFT acquired 69.96% stake in Atlas G.I.P., a Romanian
architecture and engineering company. They also gained the acquisition of International
Logging Inc. in August 2008.

WFT is a member of the S&P 500 Index.


Investment Rationale
/Risk



After growth of only 12% in 2003, Weatherford's revenue increased 28% annually (on
average) between 2004 and 2008. Operating income has more than quadrupled
because of expanding profit margins during the same time frame. However, given our
weaker nea
r
-
term outlook, we expect revenue and operating income to decline in
2009.

WFT reported a 79% decrease in third quarter net income due to the decline in
North America
, with revenues decreasing 47% against a 52% decline in rig coun
t.



Weatherford's operating

strength was on display in 2008, with its operating margin
topping 20%. However, we expect the company's operating margin to decline sharply
in 2009 as the services industry faces the prospect of an industrywide oversupply of
services equipment because of

lowe
r demand from services customers.



Weatherford ended 2008 with more than $5 billion in debt, and the firm's debt/EBITDA
ratio stands at around 2.2. The firm has spent significantly in excess of its operating
cash flow during the last few years to take
advantage of growth opportunities and has
used debt to make up the difference. We consider the firm's financial health to be fair
and note the firm will need to be far more prudent with its expenditures going forward if
it wants to avoid financial difficul
ties in the future.