One More Reason To Watch Harold Simmons

Texas investor Harold Simmons, whose pursuit of Lockheed has sent that stock soaring, may do the same for a little-known small-cap stock called Baroid.

Simmons already owns 42% of Baroid, a major equipment-and-services supplier to the oil-and-gas industry. "He's bound to pay more attention to his Baroid stake now that it's poised to take off in the wake of renewed interest in oil-and-gas drilling," argues one New York money manager.

Whispers are that Simmons will purchase more shares, since the company's cash flow and earnings are perking up. Another rumor: Instead of buying more shares, Simmons may be leaning toward selling his stake to an investment group in order to wage a new proxy battle at Lockheed, where he owns a 19.8% stake. Either way, Baroid shareholders will be big winners, say some pros. They believe a sale of Simmons' Baroid stake would trigger a buyout.

DESERT CLEANUP. Analysts say Big Board-traded Baroid is among the oil-service companies that will strike it rich helping rehabilitate Kuwait's oil fields, which were devastated by the Iraqis. What's more, exploration in the U. S. is expected to pick up in the second half of 1991.

Veteran oil-service analyst George Gaspar of Robert W. Baird & Co. says Baroid's Sperry-Sun Drilling Services Div., the nation's third-largest provider of deep-drilling equipment and services, is sure to participate in the vast undertaking of repairing Kuwait's fields. Baroid has agreed to acquire Belgium's Diamant Boart Strabit, a profitable worldwide supplier of diamond drilling bits services. Diamant Boart Strabit fits well with Sperry-Sun and should help Baroid in its Kuwait work, says Gaspar. The combined Sperry-Sun/DBS operations are expected to generate 30% to 40% of Baroid's total 1991 revenues.

Gaspar believes that, based on price-to-cash-flow multiples and price-earnings ratios, Baroid is way undervalued compared with other major oil-service companies. The stock, which has spurted to 7 from 5 in December, traded as high as 14 in 1990. "It could double in 12 to 18 months," says Gaspar.

This pro figures that Baroid's cash flow will increase to $1 a share in 1991 from an estimated 85~ in 1990 and 70~ in 1989. Profits are also on the rise. Gaspar expects the company to earn 40~ a share in 1991 and 55~ in 1992, vs. 26~ in 1990. Simmons wasn't available for comment.

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