Low Valuation Alert: Tidewater, Inc.

Dec.29.09 | About: Tidewater, Inc. (TDW)

Tidewater, Inc. (NYSE:TDW) owns and operates one of the world's largest fleets, serving the international offshore energy industry. Tidewater vessels can be found in virtually every area of the world where there is significant oil and gas exploration, development or production. These provide a wide range of services including: transporting crews and supplies between the mainland and offshore locations; towing and positioning mobile drilling rigs; assisting in offshore construction projects; and a variety of specialized services including cable laying and 3-D seismic work. Tidewater Inc. has a market cap of $2.41 billion; its shares were traded at around $46.65 with a P/E ratio of 6.3 and P/S ratio of 1.7. The dividend yield of Tidewater Inc. stocks is 2.1%. Tidewater Inc. had an annual average earning growth of 4.3% over the past 10 years

VALUATION RATIOS

TDW Industry Sector S&P 500
P/E Ratio (TTM) 6.45 0.88 15.45 92.78
P/E High - Last 5 Yrs. 56.23 0.18 0.32 18.73
P/E Low - Last 5 Yrs. 4.77 0.02 0.08 5.70
Beta 1.14 1.30 1.10 1.31
Price to Sales (TTM) 1.81 1.67 0.48 2.07
Price to Book (MRQ) 1.01 0.72 1.26 2.65
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FINANCIAL STRENGTH
TDW Industry Sector S&P 500
Quick Ratio (MRQ) 2.61 0.97 1.41 0.93
Current Ratio (MRQ) 2.78 1.06 1.74 1.10
LT Debt to Equity (MRQ) 11.61 120.06 64.64 123.75
Total Debt to Equity (MRQ) 12.67 144.79 91.90 183.67
Interest Coverage (TTM) -- 0.17 0.24 25.51
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PROFITABILITY RATIOS
TDW Industry Sector S&P 500
Gross Margin (TTM) 50.75 2.57 9.16 29.83
Gross Margin - 5 Yr. Avg. 49.01 32.11 21.54 29.58
EBITD Margin (TTM) 38.84 -- -- --
EBITD - 5 Yr. Avg. 40.71 16.40 13.34 17.20
Operating Margin (TTM) 29.12 -1.00 1.37 --
Operating Margin - 5 Yr. Avg. 30.06 10.82 7.68 19.39
Pre-Tax Margin (TTM) 30.86 13.26 0.94 8.46
Pre-Tax Margin - 5 Yr. Avg. 33.44 30.41 7.94 19.05
Net Profit Margin (TTM) 27.85 13.53 0.58 6.63
Net Profit Margin - 5 Yr. Avg. 27.06 25.51 5.37 13.54
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MANAGEMENT EFFECTIVENESS
TDW Industry Sector S&P 500
Return on Assets (TTM) 12.11 -0.40 0.17 4.06
Return on Assets - 5 Yr. Avg. 11.54 7.11 4.10 5.74
Return on Investment (TTM) 13.06 -0.59 0.13 5.57
Return on Investment - 5 Yr. Avg. 12.22 10.00 6.31 7.48
Return on Equity (TTM) 16.75 -0.62 0.12 9.71
Return on Equity - 5 Yr. Avg. 16.62 20.01 10.34 15.70
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Tidewater is attractive in so many different ways. It is cheap relative to its valuation both on TTM P/E, P/E based on the past five years, and on forward P/E. It is also trading right at its book value. With a large percent of its book value based on property, plant and equipment, the real value of these assets is probably much higher. On that basis alone the stock provides a high margin of safety. The stock also is in very healthy financial shape with lots of cash and low debt. The company has enough cash to pay off nearly all its liabilities. The stock also has a forward dividend of 2.1% which is a nice kicker in today's abnormally low yield environment.

Tidewater has very high margins which means that additional revenue growth will likely translate into higher EPS vs. its competitors. Not only are the margins very good but they have increased significantly over the past ten years. They have leveled off slightly due to the severe recession, but the company's margins are still far higher than they were a few years back. This means the company is translating higher revenues into higher EPS, and not just into higher market share.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 TTM
Revenue 1 1 1 1 1 1 1 1 1 1 1
COGS 0.63 0.63 0.54 0.58 0.64 0.62 0.52 0.46 0.5 0.5 0.49
Gross Margin 0.37 0.37 0.46 0.42 0.36 0.38 0.48 0.54 0.5 0.5 0.51
SG&A 0.11 0.11 0.09 0.1 0.1 0.11 0.1 0.09 0.1 0.1 0.1
R&D --- --- --- --- --- --- --- --- --- --- ---
Other 0.14 0.13 0.11 0.13 0.18 0.13 0.03 0.07 0.09 0.07 0.11
Operating Margin 0.12 0.13 0.26 0.19 0.08 0.14 0.36 0.38 0.32 0.34 0.29
Net Int Inc & Other 0.07 0.07 0.02 0.02 0.01 0 0.01 0.02 0.02 0.02 0.02
EBT Margin 0.18 0.21 0.28 0.2 0.08 0.14 0.37 0.4 0.34 0.35 0.31
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The company has traded at an average P/E of 16.4 over the last five years. Tidewater is well off its high of $78 reached in July 2007. Even at a price of $78, I believe the company was undervalued. Based on a variety of measures, I think TDW is trading far below its intrinsic value. If the company traded at 1.5x book value, which I think is fair for the company, especially in relation to the S&P 500's current P/B of 2.65, this would make the stock a $70 stock. If the company traded at 2x book value, still far below the market average, the stock would be $93.

Disclosure: Long TDW