Smith International shares tumble after downgrade

Smith International downgraded to 'Market Perform' on shrinking market share in Brazil

• On 10:27 am EDT, Wednesday September 2, 2009

NEW YORK (AP) -- Shares of Smith International Inc. tumbled nearly 5 percent in Wednesday morning trading as an analyst cut his rating and price target for the oilfield services provider.

Shares of Smith fell $1.30, or 4.8 percent, to $25.73 in morning trading.

FBR Capital Markets analyst Robert MacKenzie attributed his downgrade to the company's lost contract with Brazil's Petrobras. In late 2008 Petrobras awarded its multiyear fluids contract to Baker Hughes Inc., Newpark Resources Inc. and Halliburton Co., completely excluding Smith, which previously held 70 percent of this contract.

MacKenzie said Petrobras has been using Smith's fluid inventories for the first half of 2009, but that the new service providers and personnel are ready to start using their own products and are pressing Petrobras to wean off its legacy inventories.

This contract loss will cut away at net income, said MacKenzie, who added that in the long term, Smith will struggle to grow at the same pace as peers without exposure to Petrobras.

MacKenzie downgraded his rating for Smith to "Market Perform" from "Outperform" and lowered his price target to $38 from $50.