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February 25, 2008 Issue Posted February 14, 2008, 5:00PM EST

Inside Wall Street

Superior Logs Superior Results

With petroleum prices not far off $100 a barrel, oil-service stocks should be skyrocketing as well. Many have been, including Schlumberger (SLB). But Superior Energy Services (SPN), which offers specialized services to boost oil and gas well production, trades at a price-earnings ratio of 10, vs. Schlumberger's 18 and other oil-service companies' 11 to 14. Yet Superior's yearly growth in earnings per share is 25% to 30% vs. its peers' 20% to 23%.

John Maloney, president of investment firm M&R Capital Management, which owns shares, says Superior, now at 42.87, is worth 60, based on earnings and cash flow. He says Superior will do well regardless of oil prices because the large producers need its services during good or bad times. One of its specialty services is "well intervention," which involves repairs and maintenance of offshore and onshore wells. Maloney sees earnings of $4.30 a share in 2008 and $5.30 in 2009.

Robin Shoemaker of Bear Stearns (BSC), who rates it outperform, says it's possible Superior (a client) will attract larger oil-service companies to buy it because of its earnings consistency, technology, and low valuation.

Note: 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 Marcial

The Drugmaker's Friend: Pharsight

Little-known Pharsight (PHST) provides services to Big Pharma, including Pfizer (PFE) and Eli Lilly (LLY)--plus the Food & Drug Administration. Using its simulation software, Pharsight helps drugmakers and biotechs decide whether to put a new compound through expensive clinical trials. "We help save hundreds of millions of dollars," says CEO Shawn O'Connor. The FDA is using Pharsight's tools to standardize its own analysis of drugs. Pfizer employed one of Pharsight's software programs early in the process of assessing a new lipid-altering agent and concluded there was little chance the drug would deliver an improvement upon an existing treatment.

Private investor Tom Maguire, who for 13 years managed the Safeco Growth Opportunity Fund and now owns stock in Pharsight, says the company's technology is an important way for pharmaceutical companies to increase their hits and reduce their misses. It offers "extraordinary value" for biotechs and drugmakers, he says. Michael Petusky of Noble Financial Capital, who rates Pharsight, now at 4.68 a share, a buy, with a 12-month target of 6.50, expects earnings of 15 cents a share in 2008 and 26 cents in 2009, vs. 16 cents in 2007.

Note: 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 Marcial

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