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The flight path of CHC Helicopter Corp. (FLI) is anything but clear these days. The company provides transportation services to offshore oil and gas rigs, where business is booming. But a combination of shrinking margins, a surging Canadian dollar and a recent leadership change have made investors far less confident about its prospects.

The stock had been zooming upward until early 2006, spurred by the visionary founder and chief executive, Craig Dobbin, and a hot market for global offshore energy production.

It also helped that Mr. Dobbin considered privatizing the company last year, buying out existing shareholders at a price of about C$30 a share.

Not bad, given that the shares traded as low as C$1.55 in 1999, after stock splits are taken into account.

Shareholders balked at the privatization plans though, which were later scrapped, causing the shares to sag.

Then, in October, Mr. Dobbin died, creating some uncertainty over the company's direction.

To make matters worse, the Canadian dollar has embarked upon an unprecedented spike against the U.S. dollar this year -- a problem given that CHC reports its financial results in Canadian dollars but has a significant chunk of its revenues and operating expenses overseas.

In the first three quarters, foreign exchange issues carved C$3.2-million from the company's operating income of C$86.6-million. In upcoming quarters, foreign exchange will cause more pain. Tomorrow, investors will get a glimpse of how much pain when the Vancouver-based company releases its fourth-quarter results for fiscal 2007.

Clearly, many people are squeamish; the shares closed on Friday at C$23.70, down C26¢, in Toronto. So far this year, the shares are down 3.7% and are back to where they were nearly three years ago, leaving investors frustrated.

Adding to the frustration is the fact that CHC's direct competitor, Houston-based Brit-stow Group Inc., has enjoyed a far different experience.

Its shares meandered between US$30 and US$35 for about two years but took off earlier this year after it reported surprisingly strong financial results. They are now up 41% year-to-date and hit a record high of US$52.21 last week in New York.

Can CHC also break out of its doldrums? Cameron Doerksen, an analyst at Versant Partners, believes the key to driving the shares higher is improving operating margins. Right now, those margins are getting squeezed by unfavourable foreign exchange rates and the purchase of new -- and pricey -- helicopters. CHC added eight helicopters in the fourth quarter alone, and will take possession of another 22 in fiscal 2008.

As a result, earnings before interest, taxes, depreciation and amortization when compared with revenues have declined from a margin of 20% in 2005 to an estimated 16% in fiscal 2007. This can make the stock's estimated price to earnings ratio of 21 look a bit steep to some investors.

"Margins will likely continue to be pressured in coming quarters, but we expect financial results to show improvement on a year-over-year basis moving through fiscal 2008 and more meaningfully into fiscal 2009," Mr. Doerksen said in a recent note to clients.

Tomorrow's results will not deliver what investors want to see. But if you are willing to bet on an easing Canadian dollar over the longer term and ongoing growth in offshore energy production, CHC's stock could be a tempting buy.

Source: Flight Path of CHC Helicopter Anything But Clear