OREANDA-NEWS. August 18, 2011. We upgrade our rating for EDC to BUY (from Sell) on the back of the rapid decline in the stock’s price, which we believe is fundamentally unjustified. We maintain our target price of USD 31.3 per share for the same reason: we do not see any fundamental reasons for a price change. We also think it is too early to estimate the impact of the current financial market turmoil on the company’s financials.

We believe that EDC’s stock has greater immunity to financial turbulence vs other oilfield services companies due to the stable nature of the drilling business. EDC provides services that are essential to the industry, unlike, for example, geophysical surveys (one of Integra’s core segments) or hydrofracturing (C.A.T. oil’s mainstay) - both of which oil companies can afford to cut when capex needs to be reduced.

OFS companies’ financials support our view. In 2010 EDC’s revenue fell 14% vs its record 2008 value; Integra’s and C.A.T. oil’s revenues decreased by 45% and 23%, respectively over the same period. Looking forward, we expect EDC’s 2011 revenue to increase by 41% YoY on the back of its acquisition of Slavneft’s drilling assets and the asset swap with Schlumberger vs moderate 14% and 13% growth for Integra and C.A.T. oil revenues, respectively.

We also note that after the 2008 crisis, EDC was the only stock in the Russian OFS sector that returned to its pre-crisis price level (on 14 Oct 2010). In our strategy report Where to Hide in a Market Downturn: A Look in the Rear-View Mirror (8 Aug 2011), we singled out EDC as a stock with a high frequency of outperformance during the most significant dips in the past three years.