The unofficial closing bells put the DJIA down almost 27 points to 12,938.75 (-0.21%), the NASDAQ fell more than 15 points (-0.52%) to 2,933.17, and the S&P 500 fell -0.33% or nearly 5 points to 1,357.66.

There were several analyst upgrades and downgrades today, including Apple Inc. (NASDAQ: AAPL) reiterated as ‘outperform’ and target price lifted to $600 at Credit Suisse; Dell Inc. (NASDAQ: DELL) cut to ‘neutral’ at Citigroup and cut to ‘hold’ at Needham; The Mosaic Co. (NYSE: MOS) raised to ‘buy’ at Canaccord Genuity; Gilead Sciences Inc. (NASDAQ: GILD) cut to ‘market perform’ at Bernstein; and Dendreon Corp. (NASDAQ: DNDN) started as ‘neutral’ at Citigroup.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Basic Energy Services Inc. (NYSE: BAS) is up 0.15% at $19.90; Community Health Systems Inc. (NYSE: CYH) is up 14.3% at $23.61; Grand Canyon Education Inc. (NASDAQ: LOPE) is down -0.95% at $17.67; Range Resources Inc. (NYSE: RRC) is up 3.4% at $66.47; Central European Media Enterprises Ltd. (NASDAQ: CETV) is down -18.5% at $6.93; Chico’s FAS Inc. (NYSE: CHS) is up 16.9% at $14.97; Dollar Tree Inc. (NASDAQ: DLTR) is down -0.76% at $87.34; Garmin Ltd. (NASDAQ: GRMN) is up 9.2% at $48.81 after posting a new 52-week high of $49.93 (more coverage here); Novagold Resources Inc. (AMEX: NG) is flat at $8.75; R.R. Donnelley & Sons Co. (NYSE: RRD) is down -1.8% at $13.00; and Toll Brothers Inc. (NYSE: TOL) is down -4.8% at $22.56 (more coverage here).

Other standouts from today include the following stocks:

HealthStream Inc. (NASDAQ: HSTM) is up nearly 34% at $23.18 after posting a new all-time high of $23.19 earlier today. The Internet-based health learning company beat both EPS and revenue expectations in its most recent quarter.

Sourcefire Inc. (NASDAQ: FIRE) is up nearly 27% at $45.34 after posting a new all-time high of $45.50 earlier today. The Internet security provider handily beat earnings and revenue expectations last night.

Threshold Pharmaceuticals Inc. (NASDAQ: THLD) is up nearly 20% at $6.0. The pharmaceutical maker yesterday announced positive results for its pancreatic cancer treatment.

Newfield Exploration Co. (NYSE: NFX) is down more than -12% at $37.06. The independent oil & gas company missed EPS and revenue estimates last night.

Brightpoint Inc. (NASDAQ: CELL) is down more than -11% at $8.89. The mobile-phone wholesaler has cut its outlook for 2012.

Stay tuned for Thursday. We have noted the following events on the schedule (all times Eastern):

• 8:30 a.m. – New US claims for unemployment benefits
• 10:00 a.m. – Federal Housing Finance Agency (FHFA) house price index
• 10:30 a.m. – EIA weekly natural gas storage report
• 11:00 a.m. – EIA weekly petroleum status report
• 11:00 a.m. – Kansas City Fed manufacturing index
• 1:00 p.m. – 7-year note auction
• 4:30 p.m. – Federal Reserve balance sheet and money supply

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Paul Ausick

AstraZeneca (AZN) Cut to Underperform at Jefferies.
Basic Energy Services (BAS) Cut to Sell at UBS.
Bronco Drilling (BRNC) Cut to Sell at UBS.
Barclays (BCS) Raised to Overweight at Morgan Stanley.
Deutsche Bank (DB) Raised to Overweight at MOrgan Stanley.
MetroPCS (PCS) remains Sell at Auriga.
Mylan Labs (MYL) Cut to Underperform at Bernstein.
Patterson-UTI (PTEN) Cut to Sell at UBS.
Pioneed Drilling (PDC) Cut to Sell at UBS.
Willis Group (WSH) Started as Buy at Sun Trust Robinson Humphrey.

JON C. OGG

The bad news dribbles on, as the company’s president and CEO noted that Basic now expects “revenues for the first quarter to be approximately 37% lower than the revenue reported in the fourth quarter of 2008.” He also noted that low natural gas prices, unstable oil prices, and lack of access to capital markets for Basic’s customers are not likely to improve in the near term, keeping prospects for Basic low.

The company expects second quarter revenue to be “similar” to the first quarter. Analysts’ estimates for the first quarter are $168.38 million, and for the second quarter $155.29 million.

The prospect of stable revenue must have been a positive signal to traders. Basic’s shares are up more than 22% this morning, almost 50% higher than the 52-week low.

Paul Ausick

Transocean yesterday canceled a $550,000/day rig lease and stopped asecond drilling project after the client ran out of cash. In the secondcase, Oilexco Inc., a Canadian E&P company, has filed forbankruptcy protection. Transocean claims the $340,000/day contract forthe Oilexco project is still in force.

Basic’s share price is off more than 3% so far today, and Transocean isup more than 3% today, after dropping more than 8% yesterday.

Paul Ausick
January 13, 2008

But for a lot less than everybody originally planned. Precision’soriginal offer was worth $9.02 in cash or 0.4225 of a Precision commonunit. The final deal for common units went down at $2.98. That’s whythe choice of cash was oversubscribed. Grey Wolf shareholders will getsome pro-rated portion of $5 cash/share of Grey Wolf stock and 0.1883of a Precision common unit.

If Grey Wolf shareholders had approved a July agreement with BasicEnergy Services, Inc. (NYSE:BAS), they wouldhave received better than $7.00 per share. Precision’s share price is offnearly 5% this morning, trading at around $6.80/share.

Paul Ausick
December 23, 2008

One proxy advisory firm, ISS Riskmetrics, counseled against the GreyWolf-Basic Energy tie-up, citing a possible conflict of interest fromGrey Wolf’s board. Ultimately, the deal was rejected by Grey Wolfshareholders, nearly 100% of which are institutional investors.

Then, Precision Drilling got serious, offering about $2 billion in cashand stock for Grey Wolf. Theinteresting thing about the offer was that it was about $1/share lowerthan the offer Precision Drilling had made earlier. The competitivelandscape had changed after all.

Then last Friday, ISS Riskmetrics and Proxy Governancerecommended that Grey Wolf shareholders accept the offer fromPrecision Drilling. Riskmetrics supports the deal because "the proposedoffer seems to have supported the Grey Wolf stock price as evidenced bythe fact that Grey Wolf’s stock price has declined significantly lessthat the average stock price decline of its peer group." Yes, that’strue, but Precision’s share price is down nearly 70% from 52-week highsit reached before it made its first unsolicited bid for Grey Wolf.

Proxy Governance supports the deal because it "appears to place a fairvalue on the company based on the overall market reaction." Themarket’s reaction since July has been to send Grey Wolf’s share pricedown about 37% from 52-week highs. Over the last twelve months, though,Grey Wolf’s share price has actually increased by 11%, while PrecisionDrilling has lost more than 45%.

Absent a last-minute offer from another buyer, this deal is expected toclose December 10th, the day after Grey Wolf’s shareholder meeting tovote on the buyout.

Paul Ausick
November 17, 2007

The deal has had its ups and downs. In April, Grey Wolf’s board hadagreed to a merger with Basic Energy Services (NYSE:BAS). Precisioninserted an unsolicited bid for Grey Wolf in June, and then sweetened the offera couple of times. Finally, in July, Grey Wolf’s shareholders rejectedBasic’s bid. Today’s deal represents an increase of about 4.5% in thetotal number of units included in Precision’s last offer.

In it’s press release today, Precision noted that Grey Wolf’s board"believes this consideration represents a substantial premium over an‘unaffected’ Grey Wolf stock price without the influence of Precision’sprevious public announcements regarding its desire to acquire GreyWolf." What the heck is the "unaffected" stock price? On June 8th, theday before Precision’s initial offer was announced, Grey Wolf stockclosed at $8.28. Last Friday, Grey Wolf closed at $8.59. Is either ofthose prices "unaffected? Or maybe the "unaffected" stock price is$7.60/share, the price of a share before the first Basic Services offer?

Precision’s previous offer for Grey Wolf used a 2008 cash flow multipleof 8.1 to derive a premium of 34% above Grey Wolf’s 30-day averageclosing stock price on June 8th. Today’s offer actually reducesPrecision’s last offer by about $1/share. Grey Wolf shareholders getless cash, but a larger stake in the combined company.

We had noted to readers of our weekly "10 Stocks Under $10"newsletter that many investors were hoping for $10.00 or even a bit higher.Because virtually all of Grey Wolf’s stock is held by institutionalinvestors, this offer could be deemed to be too low still. In earlytrading today, Grey Wolf is down by about $0.15, and Precision is downmore than $1.25.

Paul Ausick
August 25, 2008

Transocean Inc. (NYSE: RIG) has given back nearly one-quarter of its value from its highs.  The worst performer among the larger players was CalDive (NYSE:DVR), down 43% from its 52-week high. Precision Drilling Trust (NYSE:PDS) is down about 30%, Weatherford (NYSE:WFT) is off about 27%, and National Oilwell Varco (NYSE:NOV) and BJ Services (NYSE:BJS) are down about 25%. A host of others are off around 20%: Baker Hughes (NYSE:BHI) at 22%; Basic Services (NYSE:BAS) at 21%; Halliburton (NYSE:HAL) at 20%; and Schlumberger (NYSE:SLB) and Smith International (NYSE:SII) are off about 19%.

That 20% number is pretty well reflected in the stock price declines among the majorintegrated oil companies. One might conclude that big oil sets the pacefor the services companies. But is that really the case?  Ken Heebner’s CGM FOCUS FUND has also stuck with the service companies.

Transocean’s forward P/E ratio is 7.81, against its current P/E of8.25. The company’s 5-year PEG ratio is 0.42. CalDive, the worstperformer, has a forward P/E of 7.46, compared with its current P/E of12.16, and a 5-year PEG ratio of 0.31. The largest companies in thesector, Schlumberger and Halliburton, have 5-year PEG ratios of rightaround 1. The smaller companies are expected to grow more than thelarger ones.

One interpretation of this is that it’s easier for smaller companies togrow than it is for large companies. Schlumberger, with a market cap ofabout $110 billion, needs large projects to make an impact on itsperformance. CalDive can get by with smaller projects. Is there anotherNorth Sea discovery on the horizon? Or an Alaska North Slope? With theexception of the large discoveries offshore Brazil, the answer is "No."Smaller projects, such as recompletions and workovers onshore in theUS, look to be where the action is for production companies. There andin the Gulf of Mexico, where Transocean is the sector’s largest player.Overall, the outlook for oilfield services is strong if the industrycan control costs and investors can be patient.

Right now drilling and day rate prices are very high whether or not oil trades back near $150 as Goldman Sachs reiterated today or if prices go back under$100.00.  You can also see how the services sector performed much better than the pipeline sector.  You can also see how the refiners have fared out the worst of the sector.

Paul Ausick
August 20, 2008

The interesting news is behind the numbers (as usual). In April, Basic announced a "merger of equals" with Grey Wolf (NYSE:GW), a well driller. The surviving entity will retain the Grey Wolf name and NYSE ticker. Grey Wolf shareholders will receive $1.82 in cash plus one share of stock in the new company in exchange for four shares of existing Grey Wolf stock. Basic stockholders receive $6.70 in cash and 0.91975 shares of stock in the new company for each share of Basic stock. Then, in early June, Canada’s Precision Drilling Trust (NYSE:PDS) made an unsolicited offer of $9.00/share in cash and stock for Grey Wolf. Precision has bumped its offer twice, and it now stands at $10.00/share. Precision, like Grey Wolf, is a drilling company, and the conventional wisdom seems to be that the deal between Precision and Grey Wolf makes more sense than the Grey Wolf/Basic deal because there is little chance for cost-cutting in the Basic merger.

On Monday, RiskMetrics (NYSE:RMG) weighed in with a report questioning the Basic/Grey Wolf merger, and raising questions of conflict of interest on Grey Wolf’s Board. Yesterday, Egan-Jones Proxy Services recommended that Grey Wolf stockholders approve the Basic merger at the special meeting called for July 15th. Grey Wolf issued a press release citing Egan-Jones’ recommendation.

The combination of Precision Drilling and Grey Wolf yields a larger drilling company, but it’s hard to see how there will be significant cost savings. The Basic/Grey Wolf merger gives Grey Wolf some additional drilling capability, plus services such as completion, workovers, and abandonment. Strategically, the latter deal seems to position the merged company better, but it won’t pay off in a quarter or two. To some shareholders, that quick payoff trumps everything else.   

Paul Ausick
July 9, 2008