S&P Cuts Target Price on UTStarcom

Analyst Ari Bensinger says CEO Hong Lu is staying on in spite of the company's receiving a Wells Notice. Plus: comments on Cabot Oil & Gas and more

UTStarcom, Inc. (UTSI): Maintains 3 STARS (hold)

Analyst: Ari Bensinger

UTStarcom's president and CEO, Hong Lu, receives a Wells Notice from the U.S. Securities and Exchange Commission in connection with an ongoing investigation into trading activities by third parties. Despite the notice, and in a turnabout from a May announcement that Lu will resign at the end of 2006, UTStarcom requests that Lu continue to serve in his capacity until the company completes its process of seeking strategic alternatives to its business. We are lowering our 12-month target price by $1 to $10 to account for our view of increased company risk due to corporate governance issues.

Cameron International (CAM): Reiterates 4 STARS (buy)

Analyst: Stewart Glickman

We think Cameron International is an attractive play on the growing deepwater oilfield services market, given the company's strong position in subsea completions and ancillary products and services. Also, with Cameron International's strong backlog, we think earnings visibility is fairly good. Although we believe a discount to peers is warranted based on lower return on capital employed, we think the discount should narrow on strong subsea growth prospects. Assuming a 9 times multiple to projected 2007 EBITDA and 11 times estimated 2007 cash flow, both below peers, we are raising our target price by $4 to $61.

Cabot Oil & Gas (COG): Maintains 3 STARS (hold)

Analyst: Larry Kay

We are raising our 12-month target price by $9 to $62, reflecting a blend of above-average peer-group valuations, based on an enterprise value of 5 times our 2007 EBITDA estimate and a price-to-earnings of 13 times our 2007 earnings per share (EPS) estimate. The stronger valuation reflects our view of accelerating production growth and our belief that proceeds from asset sales will allow the funding of share buybacks, strengthen the balance sheet and allow for focus on more strategically significant regions. With upside potential to our revised target price that we still see as limited, however, we would not add to positions.

Petroleum Geo-Services (PGS): Reiterates 4 STARS (buy)

Analyst: Stewart Glickman

We think Petroleum Geo-Services is well positioned to benefit from growing interest in seismic data acquisition and processing, given the technical challenges found in oil & gas exploration, especially in deepwaters. We think the major find in the Lower Tertiary region of the Gulf of Mexico in 2006 could boost exploration efforts in this area longer term and advances in seismic technology, including those offered by Petroleum Geo-Services, will be critical to fully capitalizing on new opportunities. We are raising our target price from a 3-for-1 split-adjusted $22.33 to $26.

Hornbeck Offshore Services (HOS): Maintains 4 STARS (buy)

Analyst: Stewart Glickman

We view Hornbeck Offshore Services as an attractive play in the growing deepwater- related oilfield services industry, as we think its premium fleet of offshore supply vessels is well-suited to handling challenging oilfield environments. We believe Hornbeck Offshore Services should generate solid earnings per share (EPS) growth in 2007, based on projected pricing gains both for OSVs and its fleet of tug and tank barges, strong utilization, and increased volumes from delivery of newly-built vessels. As a result, we are lifting our 2007 EPS estimate to $3.44 from $3.08, but our target price remains $47 on relative and DCF metrics.

Precision Castparts (PCP): Reiterates 4 STARS (buy)

Analyst: Richard Tortoriello

We are raising our fiscal year 2008 (March) EPS estimate to $4.70 from $4.50, as we believe strong trends in the aerospace, power generation, and oil & gas industries will remain in place in calendar 2007 and beyond. We also expect PCP to leverage volume increases to further improve operating margins. Our 12-month target price rises to $90 from $77, or 19 times our fiscal year 2008 EPS estimate, near the high-end of PCP's historical forward price-to-earnings ratio. Given our expectation of continued double-digit growth in both sales and earnings, we believe shares should trade near the high end of their historical range.

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