Gulf Island Fabrication Offers Investors Growth and Value

Gulf Island Fabrication, Inc. (GIFI), a manufacturer of drilling and production platforms and other specialized structures for the oil and gas industry, is a double play as it offers investors both value and growth. Last week, it reported quarterly results above consensus expectations with EPS at $0.83 vs. $0.77 estimates and $0.55 last year; and revenue at $117.9mm vs. $116.25mm estimates and $137.6mm last year. Going forward, GIFI expects 2008 revenues at $144.9mm and 2009 revenues at 292.8mm.  Gulf Island Fabrication trades at a forward P/E of 14.39 and a PEG ratio at 0.81 while averaging earnings growth of 29.38% over the last four quarters.

Dissecting the company’s 10-Q, comments on its backlog provides investors visibility on its future growth prospects. The company estimated a revenue backlog at $437.7mm and a labor backlog at 4.6mm man-hours remaining to work. 58.3% of these figures represents projects destined for deepwater locations and is based upon work remaining at June 30, 2008 and commitments received through 2Q earnings released on July 24, 2008. For comparison, on December 31, 2007, it stated a revenue backlog at $330.4 mm and labor backlog at 3.7mm man-hours.

GIFI appears to be in the process of a Fibonacci retracement as yesterday the stock broke out to a new 5 day-high since it bottomed July 24th at 39.13 after declining from its July high of 52.59.  A 61.8% retracement to 47.56 represents at 10% upside potential with a risk to reward ratio of 3.60. For more patient investors, a 100% retracement to 52.59 equals at 21.7% upside potential with a risk to reward ratio of 7.75. (See Chart #1 below) 

Summary: Based upon valuation, growth prospects, and yesterday's bullish price action, GIFI’s closing price of 43.21 represents a good buy opportunity up to 44.00 with a stop loss at 42.00 for -3.2% maximum downside risk.

Disclosure: None

Comments

[Steven Ward:]

Dead cat bounce. Nothing here for an equity investor yet. The best thing is for the investor to buy and pray a buyout occurs. Good possibility of that. Otherwise the chart looks lousy and the stock would have to finish above 45.00 for 5 consecutive trading days.

2008 Jul 29 09:00 PM

[NOWHEREMAN:]

H&S top, with break below 42.5 on heavier volume and retrace to break down level, if reading is not false, suggests a move down to low 30s. If you do want to buy it, suggest selling calls on your position. Use part of the income to buy a few puts.

2008 Jul 30 01:23 AM