macquarie report recommendation for osh, page-3

Check out Jan 2005 issue of Personal Investor mag - most analysts are still tipping oil and energy stocks for 2005. My personal belief is that with the oil price, it has more upside. If you think about how the global markets respond to bad news (such as terrorism, violence and disruption to oil supplies) it would seem reasonable to assume these acts would continue at least intermittently and therefore continue to keep oil towards the higher range. Markets move on news and there is not much news that could really cause the price to decrease unless oil supplies are increased (unlikely after cutbacks and that suppliers make money from higher oil price), oil demand is reduced (if it is reduced as we have seen then supply seems to be contracted to match and keeps oil stable). There is no other news that could have any downside for the oil price, so this leads me to conclude there is more upside for oil price.

As a result, oil profits should be higher, giving higher than the market has expected in terms of EPS. If market doesnt currently factor this in then it is undervalued. Higher EPS on the current OSH price gives a reasonably healthy yield as well as a lower PE. Though PE should not always be used for energy stocks, DCF valuation by Macquarie gives a target of $2.22 (see other posting earlier today for report)