Friday, FBR Capital Markets downgraded Tesco Corp. (TESO) shares to Market Perform from Outperform and lowered its price target to $10 from $13. The brokerage decreased its 2009 EPS estimate to $0.01 from $0.29, and its 2010 estimate to $0.30 from $0.50.
Analyst Robert MacKenzie lowered estimates to reflect the expectation for a later rebound for Tesco's top drive sales, weak demand for casing drilling in North America as marginal troubled well drilling has dried up, and weak second quarter of 2009 results that were not largely attributable to Canadian exposure, indicating limited likelihood of a near-tern bounce.
The analyst's price target of $10 represents 7.4x 2010 EV/EBITDA, a roughly 20% premium to other North American peers' current 2010 EV/EBITDA of 6.2x, a premium he feels is warranted given Tesco's proprietary product offerings potential beyond his 12-month time horizon.
Despite the superior growth potential of Tesco's services, the analyst does not see a meaningful rebound in the next few quarters and further believes TESO is a later-cycle recovery than some of its more oily and service-oriented peers, thus downgrading the stock to Market Perform.
Currently, TESO is down $0.07 or 0.74% and trading at $9.38.
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