One of the highest risk/highest return strategies in the investment universe is to bet on former high flyers that have recently crashed on the hope they will complete a successful turnaround and regain some of their former glory. For every Apple (AAPL), there is a Palm. For every Macy's (M) there is a Sears (SHLD). One former high flying energy stock that looks to be in midst of a significant turnaround is Hercules Offshore (HERO).
8 reasons Hercules is worth a flyer for speculative investors at $4.50 a share:
- The company is undergoing a turnaround that seems to be gaining momentum. The company lost 51 cents a share in FY2011, is projected to improve to a loss of 36 cents a share in FY2012 and to produce a 6 cent profit in FY2013.
- Consensus earnings estimates for FY2012 and FY2013 have improved over the past three months. FY2013's consensus earnings have impressively increased over past ninety days, going from a loss of 22 cents to a 6 cent gain.
- Insiders seem to have faith as they have been net buyers over the past eight months.
- The company just successfully raised $500mm in debt in a private placement, a good portion of the proceeds will be used to redeem higher priced debt which will improve cash flow and earnings. It also issued $100 in common equity. Moody's upgraded its debt after this recapitalization was completed.
- Although the company lost money in each of the last three years, its operating cash flow was positive and doubled between FY2010 and FY2011.
- The company just acquired the Ocean Columbia jack up rig from Diamond Offshore (DO) for $40mm. It will be refurbished for approximately $45mm and deployed in Saudi Arabia in a $160mm/3 year contract in late 2012.
- Hercules is gaining momentum and analysts are hopping on board. It has been upgraded at FBR Capital Markets and CLSA in the last few weeks.
- The company recently terminated its "poison pill" provisions, which would make a takeover much easier. Given this was close to a $40 stock prior to the financial crisis, this is a development worth keeping an eye on.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HERO over the next 72 hours.