All Primed to Gush at Tenaris

Luxembourg's Tenaris (TS), a maker of seamless steel conduits used for oil pipelines, is starting to attract attention in the U.S. Value investor Don Gimbel of Carrett & Co. says that although Tenaris may look boring, its low-risk, high-yield profile is appealing in the current malaise. Gimbel, who sees Tenaris earning $2.57 a share in 2003, up from $1.31 in 2002, expects the company to initiate a dividend of $1.29 a share in June -- for a 6% yield. Its American depositary receipts started trading on the Big Board on Dec. 16, 2002 (with 10 ADRs equal to one share). "Tenaris is the ideal vehicle in the expansion of the energy industry," says Gimbel. The stock, which spurted from 17 in mid-December to 24 on Apr. 23, should rise to 35 in two years, he says.

Luís Miranda of Spain's Santander Central Hispano Investment says Tenaris' yearly free cash flow of $400 million and its low debt-to-equity ratio will enable it to pay strong dividends and make acquisitions. Yet Tenaris is "significantly undervalued," he says, at 4.5 times his 2003 EBITDA estimate, compared with 5.5 for other seamless-pipe makers and 8.9 for oil-service stocks. He rates it a buy.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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