Positives for BJ Accounted For

The strength in natural gas prices, reflective of the commodity's favorable supply-demand outlook, is expected to help increase the onshore rig count later this year. The resulting impact on overall activity levels in general and pressure pumping in particular should be positive.

BJ Services Company (BJS) remains well-positioned to continue benefiting from the still favorable macro environment. The company's worldwide operations are primarily driven by the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity.

However, the pressure pumping market continues to remain in an over-supplied state, resulting in pricing pressures and margin erosion. While the demand side of the equation is expected to continue improving, it may take a while for the supply overhang to work itself through. So, while valuation has become reasonable, these headwinds continue to keep us on the sidelines.

Overall recent drilling activity has been the highest since 1985. Driven by this favorable trend, BJ Services' both total and domestic revenue increased approximately 10% in 2007 over the prior-year level. Additionally, as recently installed assets in the International Pressure Pumping segment start working, revenue from this segment will modestly increase from current levels. We expect these positive trends to remain in place through next year.

The company's growth rates were particularly impressive in the Middle East, Asia-Pacific, and Latin America in the second-quarter. Recently, the company bagged an offshore stimulation and completion contract off the east coast of India.

The company remains in excellent financial health. The company currently has a long-term debt of $616 million, with a net debt-to-capitalization ratio of just over 15%. This provides the company with sufficient flexibility to go for bolt-on acquisitions and/or organic growth ventures.

Cancun Airport Merge Affects ASR

We are reiterating our Hold recommendation on Grupo Aeroportuario del Sureste, S.A. de C.V. (ASR). First quarter operating results were better than expected and the outlook for the very short term remained encouraging since passenger traffic continued to increase.

Nevertheless, the continued increase in oil prices, higher inflation and interest rates throughout the world and the difficult economic environment in the U.S. are important sources of concern. Finally, the stock's valuation is not particularly attractive.

The continued growth in passenger traffic is a key point behind the company's success.