The Long Case For Mitcham Industries

Aug. 3.06 | About: Mitcham Industries, (MIND)

According to Yahoo Finance:

Mitcham Industries, Inc. (NASDAQ:MIND) and its subsidiaries engage in the leasing and sale of seismic equipment to the seismic industry worldwide. Mitcham is the largest independent company specializing in short-term leasing of 3-D seismic equipment to the oil and gas industry. Mitcham's 3-D seismic technology is used to acquire the pivotal data that's used to efficiently locate oil and gas deposits during the exploration process.

Catalysts that warrant a consideration to MIND:

  • As a leaser of 3-D seismic equipment, MIND benefits from both seismic data acquisition firms and oil and gas producers wanting to lease its equipment to conduct data acquisition surveys on land, shallow land and marsh areas.
  • MIND's lease agreements usually have terms of three to nine months, are renewable on a monthly basis, are advantageous for the following reasons: A reduction in expensive equipment surplus held by oil & gas companies that might otherwise lie in a state of disuse between exploration projects, having expensive 3-D equipment available on demand; a reduction in capital expenditures; and fast supplementation to existing equipment inventories for specific jobs.
  • With growing worldwide demand, especially from BRIC, the overall supply and demand balance of oil presents a bullish outlook for MIND. Between 2006 & 2010, the demand is forecasted to rise almost 3% more than supply, and consumption is forecasted to grow a total of 15%, or 13.6 million barrels per day. With increasing pressure on oil companies to find more oil reserves, MIND's technology comes into handy for locating oil & gas deposits in the exploration process.
  • Valuation: MIND has quarterly revenue growth of 84% vs 15% for Industry, sells at current multiple of 10 versus 21 for industry. I also like that MIND's Operating cash flow per share is greater than reported EPS (OPS 2.01 vs 1.21), reflecting that earnings are of high quality because the company is generating more cash than is reported on the income statement. Gross margins are 70% vs 28% for industry.
  • MIND 1-yr Chart



    Disclosure: I don't own the stock