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Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Tidewater Inc. fares in the ModernGraham valuation model.

TDW Chart

TDW data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio - PEmg is less than 20 - PASS
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price$49.34
MG OpinionOvervalued
Value Based on 3% Growth$42.33
Value Based on 0% Growth$24.81
Market Implied Growth Rate4.20%
Net Current Asset Value (NCAV)-$28.29
PEmg16.90
Current Ratio2.37
PB Ratio0.93

Balance Sheet - 12/31/2013

Current Assets$803,900,000
Current Liabilities$339,200,000
Total Debt$1,464,000,000
Total Assets$4,847,400,000
Intangible Assets$283,700,000
Total Liabilities$2,207,500,000
Outstanding Shares49,620,000

Earnings Per Share

2014 (Estimate)$3.49
2013$3.03
2012$1.70
2011$2.05
2010$5.02
2009$7.89
2008$6.43
2007$6.31
2006$4.07
2005$1.78
2004$0.73

Earnings Per Share - ModernGraham

2014 (Estimate)$2.92
2013$3.07
2012$3.60
2011$4.88
2010$6.18
2009$6.27

Dividend History

TDW Dividend Chart

TDW Dividend data by YCharts

Conclusion:

Tidewater is suitable for the Defensive Investor, having only failed the investor type's earnings growth requirement. The company is also suitable for the Enterprising Investor by default, despite having failed both the debt to net current asset requirement and the earnings growth requirement. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should keep Tidewater on a watch list and feel comfortable proceeding with further research, including a review of 5 Low PEmg Companies for the Enterprising Investor and 5 Outstanding Dow Components.

From a valuation perspective, the company does not perform very well, largely due to the lack of earnings growth over the last 5 years. The company's EPSmg (normalized earnings) have dropped from $6.18 in 2010 to an estimated $2.92 for 2014, a change that clearly does not support the market's implied estimate for 4.20% earnings growth. As a result, the ModernGraham valuation model finds that any value in the company must come from a source other than the earnings, though it should be noted that if the company can achieve a growth level of 3%, the value would be around $42 based on current EPSmg.

The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Tidewater Inc.? Where do you see the company going in the future? Is there a company you like better?

Disclosure: The author did not hold a position in Tidewater Inc. (NYSE:TDW) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Quarterly Valuation Of Tidewater Inc.