Goldman Sachs Maintains A Sell Rating On Basic Energy Services Following Earnings

Basic Energy Services BAS reported 4Q10 EPS of -$0.05 vs. GS of -$0.11 and FC of -$0.13; EBITDA results were in line with the preannounced range of $42-44 mn on 2/1/11. Goldman raises its 2011/12/13 EPS by $0.77/$0.70/$0.70 to $0.58/$0.27/$0.24. As a result, Goldman raises its 6-month price target from $11 to $16. Goldman Sachs had significantly underestimated BAS' leverage to rising activity in the oily Permian Basin as well as its potential to make accretive acquisitions. Goldman maintains a Sell rating as it expects earnings to peak mid-2011 and decline into 4Q. Goldman expects this decline to be driven by a deterioration in pressure pumping margins as an estimated 40% increase in capacity pours into the market. Despite Goldman's higher estimates, there is 15% potential downside to the new PT of $16, which is based on a historical average EBITDA multiple of 5.0X. The historical upcycle average is 4.75X and the multiple on peak EBITDA was just 3X last cycle. BAS closed Thursday at $16