With the run-up earlier this year in oil-service stocks, the median earnings multiple for the group expanded from about 10 times in late 2006 to around 12.1 times in mid-June 2007. Some investors now appear worried that this sector is overheated. But such a perception is far from correct, contends one analyst. "When one considers the fact that the oilfield-service group has posted an average multiple of 19.5 times earnings during the past decade, today's [oil-service] valuations would hardly be considered expensive," says J. Marshall Adkins, director of equity research for Raymond James & Associates in Houston. "In fact, oilfield-service stocks are trading at among the lowest forward-earnings multiples that they have traded at during the entire past decade-despite the fact that the OSX (Philadelphia Oil Service Index) is at an all-time high." Case in point: Schlumberger Ltd., the largest name in the group, was trading this past June at about 18 times 2008 earnings per share. Historically, it used to trade at earnings multiples in the mid-30% range, says Adkins. For more on this, see the August issue of Oil and Gas Investor. For a subscription, call 713-260-6441.
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