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Summary

  • Analysts are expecting ATW to earn $1.12/share in terms of EPS when the company announces its FQ3 results on July 28.
  • Recent trend behavior could continue well into the second-half of the year, if ATW can meet and/or exceed analysts earnings expectations for the upcoming quarter.
  • If the company can demonstrate increases in net income and contract drilling revenue while decreasing its overall costs, then I strongly believe ATW should have no problem exceeding estimates.

As we find ourselves heading into yet another action-packed earnings season, I wanted to take a closer look at the upcoming earnings for one particular company in the drilling and exploration sector and share my thoughts on what needs to happen in order for Atwood Oceanics (NYSE:ATW) to meet and/or surpass analysts expectations.

Company Overview

Headquartered in Houston, Texas, Atwood Oceanics is a leading offshore drilling company engaged in the drilling and completion of exploration and development wells for the global oil and gas industry. The company's versatile drilling fleet consists of four ultra-deepwater drillships (three of which are under construction), two ultra-deepwater semisubmersibles, three deepwater semisubmersibles and five high-specification jackups.

Recent Trend Behavior

On Thursday, shares of ATW, which currently possess a market cap of $3.34 billion, a forward P/E ratio of 7.10, and a PEG ratio of 0.51, settled at a price of $51.95/share. Based on a closing price of $51.95/share, shares of ATW are trading 0.01% above their 20-day simple moving average, 4.21% above their 50-day simple moving average, and 2.15% above their 200-day simple moving average.

It should be noted that these numbers indicate a short-term and mid-to-long term uptrend for the stock, which generally translates into a buying mode for most near-term traders and many long-term investors. If the company can demonstrate a strong-than-expected earnings performance when it announces FQ3 results on July 28, there's a very good chance the company's trend behavior will move in a sustainably positive direction.

Upcoming Earnings Outlook

When it comes to the company's upcoming FQ3 earnings, there are a number of things potential investors should consider. For example, analysts are currently calling for ATW to earn $1.12/share when its latest earnings are released on July 28 (which is $0.01/share lower than what the company had reported during FQ2 2014, and $0.25/share lower than the company had reported during the year-ago period).

In order to meet and/or exceed its quarterly EPS estimates, I'd like to see a 2.5%-to-3.5% increase in the company's net income, a 3.0%-to-4.0% increase in the company's contract drilling revenues, and lastly, a 1.5%-to-3.0% decrease in both its drilling-related and G&A expenses.

A Few Thoughts On Cowen's Recent Comments

Should investors be concerned with Atwood's recent announcement regarding the delay of its drillship Advantage? As was previously noted by the analysts at Cowen, many of Atwood's peers have also experienced similar delays with regard to their respected drillships, and although the six-month window for delays is fairly standard, I'd only start to raise concern if that window for standard delays were to exceed the original six-month time frame.

As far as the price target and earnings estimates go, I strongly believe Cowen was playing it a bit conservative when it tagged Atwood with a $60 price target and an EPS estimate of $1.05/share. In my humble opinion, I strongly believe shares could reach as high as $66/share and FQ3 earnings (which will be fueled by higher contract drilling revenues and lower costs) could fall into a range of $1.14/share-to-$1.19/share.

Conclusion

For those of you who may be considering a position in Atwood Oceanics,I'd actually look to keep a closer eye on any further developments with regard to its drillship Advantage as well as its ability to generate higher contract drilling revenues while reducing both its overall costs on a quarter-over-quarter basis. By reducing overall costs while experiencing the standard amount of drillship delays, there's no reason why the company's FQ3 earnings should stray off their expected course.

Source: Atwood Drilling: A Look Ahead To The Company's Upcoming Earnings