(By Balaseshan) CIBC World Markets Inc. analyst David Galison downgraded his rating of Bri-Chem Corp. (TSE: BRY) to "sector performer" from "sector outperformer" and lowered his price target to $2.75 from $4.
Bri-Chem reported Q3-2012 EPS of $0.10 versus a loss of $0.03 in Q2-2012 and EPS of $0.24 in Q3-2011, above Galison's estimate of $0.05 and consensus of $0.06. Results benefited from a $0.03 per share foreign exchange gain in the quarter. Excluding the foreign exchange gain, EPS would have been $0.07.
In addition to the weak 2013 outlook for drilling activity, the outlook for the Canadian drilling fluids division is negatively impacted by Bri-Chem's two largest customers establishing their own blending and storage facilities to service their liquid inverts needs, the analyst noted.
[Related -Merger Arbitrage Mondays – June 3, 2013]
While the ramp-up of the seamless steel pipe manufacturing facility is progressing, management suggested that full production capacity is now expected to be about 16,000 MT annually, down significantly from management's prior estimate of 24,000-30,000 MT annually, Galison noted.
As a result of the analyst's outlook for continued weakness in drilling activity, market share losses for liquid inverts, and lower capacity at the steel manufacturing division, he is reducing forward estimates. His price target drops to $2.75 reflecting his lower outlook.
The brokerage raised its 2012 EPS estimate to $0.33 from $0.29, while lowering its 2013 estimate to $0.54 from $0.73.
BRY is trading down 9.27 percent at $2.35 on Friday.