Wells Fargo Upgrades Allis-Chalmers Energy (ALY) to Market Perform; Moving Up Internationally, But U.S. Held Back

November 5, 2009 7:40 AM EST

Wells Fargo upgrades Allis-Chalmers Energy (NYSE: ALY) to Market Perform. Valuation range now $2.79-$3.48 from $1.75-$2.00.

Wells analyst says, "We're reducing our 4Q09/2010E EPS to ($0.09)/($0.18) from ($0.03)/+$0.05 on 3Q results/remarks and an expectation that continued losses in the U.S. will overwhelm expected progress internationally. But, we're upgrading our rating on ALY to Market Perform on a shift in valuation methodology. Since ALY is now expected to generate a loss in 2010 and we don't have sufficient visibility, yet, on its likely 2011 earnings, we've shifted from a valuation range based on P/E to one based on a % of Book Value, for which we use 40-50%, an admittedly arbirtrary but comfortably conservative discount...This raises our valuation from $1.75-2.00, reflecting 35-40x our old 2010E EPS, to $2.79-3.48."

"Advancing (If In Inches) Internationally...But Our U.S. Fears Were Simply Reinforced By 3Q Results...ALY should continue to have success, however gradually, at redeploying assets from the U.S. and Argentina to more promising markets, and leveraging its major investors to cultivate new relationships. But, the increasingly competitive Big 6 should limit the ultimate size and profitability ALY can achieve abroad. We would look to get more aggressive given a more attractive valuation and/or signs that it has greater-than-appreciated upside potential, be it in the U.S. or internationally."
To see more analyst ratings on ALY Click Here.

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