Smith International Inc.SII

Morningstar Rating

Stock Research and Analysis

by Stephen Ellis

We think the merger between Smith International and W-H Energy Services has the potential to create significant strategic value and enhance profitability. The combination of Smith's drill bit and W-H Energy's directional drilling product lines signifies Read more

Bulls Say

The company constantly innovates to keep competitors at bay--80% of diamond bit revenue comes from products designed within the last 18 months.

The merger with W-H Energy should add strategic value. The combined company will be able to provide a far broader range of drilling products, including valuable directional drilling systems.

Smith has been acquiring companies in the waste-management industry. We expect that more-onerous environmental regulations for the disposal of drilling waste will present future growth opportunities. Read more

Bears Say

The company's distribution arm, Wilson, continues to be a drain on the company's overall performance, as its margins are much lower than the core business.

Baker Hughes is the number-one player in the drill-bit segment, with more resources than Smith. Larger peer Halliburton is also making a renewed effort to win additional market share.

Currently, Smith's PathFinder product line is targeted only at onshore and shallow-water applications. The company is not trying to obtain a presence or experience with the small number of highly lucrative deep-water wells. Read more

Strategy

The firm's strategy is to leverage its assets--namely, its drill-bit database--to provide technically advanced and cost-effective solutions for its customers. The firm's ability to customize each drill Read more

Management

Former CEO Doug Rock stepped down from the CEO role, but he retained his chairman position. John Yearwood is Smith's new CEO as of Jan. 1, 2009. We're pleased to see the separation of the CEO and chairman of the board roles, which is a good stewardship Read more

Profile

Smith International supplies drill bits, fluids, and other products to the oil and gas industry. It provides a comprehensive line of oil field service products, including Read more

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