Atwood Oceanics +2.1% as Barron's says shares should climb 40%

The Barron's bounce is alive and well even amid today's broad stock market losses, as Atwood Oceanics (ATW +2.1%) benefits from a weekend article that says the midcap offshore driller should rise 40% in the next year.

The vast majority of ATW's rigs are on contract through 2015, meaning ATW is less exposed to the recent dip in day rates than rivals, and ATW is more efficient than peers, making it more resilient in a weaker market; its 40% operating profit margin is 11 percentage points above the average offshore oil driller's and tops rivals' like Transocean (RIG), at 26%, and Rowan (RDC), at 21%.

ATW's free cash flow has been negative since 2011 because of its shipbuilding program, but some analysts think cash should gush again starting in 2015, and the company could start issuing a dividend or buying back shares.

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Comments (5)
  • saratogahawk
    , contributor
    Comments (2535) | Send Message
    How is ATW more efficient than peers? How does ATW have less exposure to day rate weakness in 2014/15 than say SDRL? If ATW's free cash flow has been negative for 3 years vs others already paying dividends don't we first have to start seeing ATW make a free cash flow before dividends can flow. This is just another example to me of analysts pumping something without a true comparison to the peer group.
    3 Mar 2014, 02:28 PM Reply Like
  • earthtodan
    , contributor
    Comments (399) | Send Message
    ATW's investor presentation explains that they have the highest margins in the industry. They also show very high comparative margins on Finviz. That's probably what he's talking about.
    3 Mar 2014, 03:07 PM Reply Like
  • Investing Doc
    , contributor
    Comments (1038) | Send Message
    @Saratogahawk: As far as day rates are concerned, I think it's because in 2014-15, the vast majority of ATW's assets are already contracted out, and the majority of these are higher specification assets (UDD ships like the Advantage, for example) which are less widely available. Admittedly, some of their newer UDD ships like the Admiral and Archer, which won't be delivered until 2015, don't have contracts out yet, so they've got some exposure.



    I'd say their fleet efficiency is at least at the industry average, but this is an area that I'm still learning about. I'm long ATW at about this price; there's no dividend and the FCF has all been eaten up by capex (those brand new ships!) but that should quickly reverse in the coming quarters. And long term, the demand for oil is only going to increase. Deep-sea drillers may be a cyclical play but they aren't going away anytime soon.
    3 Mar 2014, 04:32 PM Reply Like
  • 11802571
    , contributor
    Comments (252) | Send Message
    ATW's insider activity shows NO CONFIDENCE in the company's performance potential. Thousands of shares awarded at zero cost to insiders or cheap options granted, MILLIONS of shares sold by insiders and immediate turnover of cheap or free shares awarded to insiders as the dominant theme in insider activity.
    Enough to scare me off.
    3 Mar 2014, 09:41 PM Reply Like
  • Casey Hoerth
    , contributor
    Comments (2631) | Send Message
    Wonder where Barron's got that idea from...
    13 Mar 2014, 04:23 PM Reply Like
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