Oceaneering International: Investment Thesis Intact, Shares Undervalued
- Oceaneering International's third quarter operating results showed preserved to improved operating margins in the face of revenue pressure, driven by a slowdown in the wider deepwater drilling industry.
- Growth in the ROV and Subsea Products segments was strong, as expected, offsetting weakness in other segments. In the short-term, with stable rig counts, revenue growth may be limited.
- Longer-term, though I lower my fair value estimate slightly, my investment thesis for Oceaneering remains intact, and shares look modestly undervalued even after the bounce last week.
Drilling For Contrarian Value In Oil And Gas: Consider Oceaneering
- Anything related to Oil & Gas has declined substantially over the last 3 months in a period when the S&P has been flat. There has to be value here somewhere.
- Started my search with those worst hit: offshore drillers. Came away from research on RIG disheartened. Next step was to look down the industry supply chain for an indirect play.
- Enter OII: manufactures ROVs and provides a range of support services to offshore drilling industry.
- A high quality company: strong management and governance, significant competitive advantages, a record of very profitable growth, and generally good prospects.
- The stock looks undervalued at 8x EBITDA. I see upside of 30% to $85. Considering the opportunity costs of my book, though, I am looking for a bit more value.
Oceaneering International: Efficient Scale, Cost Advantages, And Intangibles Grant A Narrow Moat
- Oceaneering International is a specialty oil services provider that dominates the remotely operated vehicle market and looks to benefit from secular trends in deepwater drilling.
- The company also looks to have sustainable competitive advantages in terms of efficient scale, cost advantages, and intangible assets.
- With prices off their 52-week high, the stock trades at a material discount to a fair value estimate of $81.
Oceaneering International Is Leading In The Earnings Space Race
- Boeing’s new contract with NASA brings the Orion spacecraft closer to embarking on its maiden voyage.
- Oceaneering International is making the space suits for the astronauts on Orion, and NASA has the option to extend the six-year contract for another five years.
- Back on Earth, Oceaneering is gearing up to report its second-quarter earnings, which could possibly extend its four-quarter streak of positive earnings surprises.
- Offshore service companies have underperformed on worries of delayed or canceled activity in the Gulf of Mexico.
- Oceaneering has a leading ROV business leveraged to drilling activity, but also extensive operations in subsea installation and repair/maintenance/integrity.
- Trading around 9x 2014 EBITDA, Oceaneering shares look undervalued today.
Mon, Jan. 12, 10:38 AM
- Goldman Sachs reiterates its cautious view on oil services companies (OIH -4.2%) as it cuts its outlook for crude prices, now forecasting a 30% cut in U.S. E&P capex and 15% globally and sharply lowering earnings estimates and target prices for several companies in the space.
- Goldman downgrades Schlumberger (SLB -5%) to Neutral from Buy with a $76 price target, down from $90, expecting SLB’s earnings to come under pressure and noting that SLB has high exposure to Russia (nearly 5% of total revenues) and will be hurt by the recent steep fall in the ruble.
- The firm removes Oceaneering (OII -3.9%) from its Conviction Buy list and cuts its price target to $64 from $74, now expecting a reduced deepwater rig count in 2015 vs. previous expectations of a flat rig count, which should hurt OII’s Remotely Operated Vehicles business.
Tue, Jan. 6, 10:37 AM
- Citigroup analyst Scott Gruber says now could be time for longer-term investors to bulk up on oil services stocks (NYSEARCA:OIH), taking the contrarian view that falling capital spending forecasts and looming bankruptcies by some E&P companies could portend that the industry’s shakeout is closer at hand.
- Meanwhile, Gruber says oil services stocks tend to stop falling as oil reaches "unsustainably low” levels, and investors appear to be through much of their selling since valuations have fallen so low.
- Oil services companies generally have been hit twice as hard as integrated oil majors during the past three months; related tickers include SLB, HAL, NOV, BHI, CAM, ESV, FTI, HP, TS, OII.
Dec. 23, 2014, 6:55 PM
- Goldman Sachs' David Kostin thinks it’s time for patient investors with at least a 12-month time horizon to begin loading up on energy companies.
- The Goldman team recommends refiners such as Marathon Petroleum (NYSE:MPC) and Phillips 66 (NYSE:PSX), as well as midstream companies that are less sensitive to oil prices and offer the potential for dividend growth, including EQT Midstream Partners (NYSE:EQM), Kinder Morgan (NYSE:KMI) and Cheniere Energy (NYSEMKT:LNG).
- With capital spending sure to take a hit and oil prices likely to remain volatile, oil service companies probably aren’t the way to go, but Goldman considers the more defensive names such as Atwood Oceanics (NYSE:ATW), Schlumberger (NYSE:SLB) and Oceaneering (NYSE:OII) as the best of a bad lot.
Dec. 23, 2014, 6:19 PM
- Although the energy sector led today's stock advance, a raft of companies downgraded by Global Hunter mostly took it on the chin - none more so than Key Energy (NYSE:KEG), which plunged 15% after shares were cut to Reduce from Neutral with a $1.50 price target that was reduced from $2.50.
- Also downgraded to Reduce were HERO -6.1%, NBR -3.2%, DO +1.3%.
- Lowered to Neutral were HAL +0.5%, GEOS -8.9%, HP -2.9%, BAS -2.5%, PKD -2.5%, BHI +0.6%, BBEP -0.2%, MEP +0.1%.
- Downgraded to Accumulate: PES -3.5%, PTEN -1.1%, NGLS +2.9%.
- The firm upgraded five stocks - ATW, NOV, OII, RES and SPN - all of which gained in today's trading.
Dec. 18, 2014, 9:59 AM
- RBC recommends increasing weightings and exposure to oil service stocks (OIH +2.5%) heading into 2015, as it says oil prices will start to improve in H2 of next year and that oil service stocks typically discount this move by 6-9 months.
- Down cycles such as 2000-02 and 2008-09 suggest North American land drillers and service companies provide the best returns off business cycle lows, RBC says as it expects a similar dynamic this time.
- RBC upgrades Key Energy (KEG +24.6%) and Superior Energy (SPN +7.5%) to Outperform, and downgrades FMC Tech (FTI +1.8%), Franks (FI +4.9%), Oceaneering (OII +0.2%) and Oil States (OIS +2.3%) to Sector Perform; the firm also says since 1985 three of the top five performing stocks off lows have been Patterson-UTI (PTEN +6.6%), Precision Drilling (PDS +4%) and Nabors (NBR +7.2%).
Dec. 16, 2014, 8:58 AM
- GE agrees to acquire Oceaneering's (NYSE:OII) Subsea Electric Actuator product line, which specializes in the design and manufacturing of specialty subsea products with a focus on electric valve actuators.
- GE says the acquisition of the product line will pave the way for electrification in its oil and gas subsea space, providing a new technology that is faster to operate for processing applications, has excellent enhanced diagnostic capabilities and can be seamlessly integrated into a customer's existing controls, communications and power network.
- Financial terms are not disclosed.
- GE -0.8% premarket.
Dec. 9, 2014, 8:12 AM
- Jefferies downgrades oil service stocks Schlumberger (NYSE:SLB), Oceaneering (NYSE:OII) and Nabors Industries (NYSE:NBR) as it lowers its Brent oil price forecast for 2015 to $72/bbl from $90, as well as an average 16% for 2015, 2016 and 2017.
- The firm expects oil prices to remain under pressure from temporary oversupply and sluggish global economic growth through H1 of next year, and remains concerned about longer-term deepwater development in light of oil prices vs. cost structures.
- Jefferies views Royal Dutch Shell (RDS.A, RDS.B) as the most defensive oil stocks in an environment where overall integrated oil earnings will drop 30% in 2015 and 21% in 2016.
Nov. 14, 2014, 12:48 PM
- Oil services companies are mostly higher as Halliburton (HAL +1.7%) is indeed in talks to buy Baker Hughes (BHI +0.5%), a deal that would provide a jolt to oilfield services companies contending with falling oil prices: SLB +0.4%, OIS +1.2%, SPN +2.3%, CAM +0.2%, FTI -0.3%, NOV -0.6%.
- Sterne Agee analyst Stephen Gengaro calls a potential HAL-BHI combo a “HAL of a Frac-ing Deal," seeing several positives for HAL including strengthening its relatively weak position in artificial lift and production chemicals which are critical to enhancing HAL’s mature field strategy, enabling it to leverage its unparalleled U.S. pressure pumping logistics chain to enhance the efficiency of BHI’s operations, and providing the opportunity for significant cost savings which likely would total $600M-$750M or more.
- While antitrust concerns could force some divestitures, Gengaro does not believe it would prevent a deal from happening.
- Other potentially attractive M&A targets among oil services companies could include Dril-Quip (DRQ +0.7%), Frank’s International (FI +2.6%) and Oceaneering (OII -0.2%), Simmons & Co. says.
Oct. 29, 2014, 5:25 PM
Oct. 29, 2014, 5:17 PM
Oct. 27, 2014, 8:55 AM
- Goldman Sachs lowers its ratings on the oil services sector (NYSEARCA:OIH) to Cautious from Attractive and downgrades several specific stocks as it cuts its 2015 oil price forecast.
- U.S. land activity will suffer the biggest impact of the lower price deck, Goldman says, with customer capital spending expected to decline 6% next year vs. its prior outlook for a 9% increase; as a result, the firm now forecasts the horizontal U.S. rig count to fall 7%, or ~200 rigs, over the next 12 months.
- Goldman downgrades Parsley Energy (PE -3.8% premarket), Diamond Offshore (DO -1.5%), Laredo Petroleum (LPI -9%) and Basic Energy Services (BAS -6.2%) to Sell with sharply lower price targets; Patterson-UTI (NASDAQ:PTEN), Pioneer Energy (NYSE:PES) and Emerge Energy (NYSE:EMES) are cut to Neutral.
- The firm adds Oceaneering (OII -0.3%) to its Conviction Buy list; it also removes Halliburton (HAL -1.5%) from the list but maintains its Buy rating on the stock.
Oct. 10, 2014, 6:55 PM
- Reports that Iran will follow Saudi Arabia in cutting oil prices likely will create "stiff headwinds" for companies in the oilfield services industry (NYSEARCA:OIH), according to a new report from Sterne Agee's Stephen Gengaro, though bigger players such as Schlumberger and Halliburton should hold out better than others.
- Although crude oil prices pared their big drops today, the analyst expects price weakness to continue in the short-term amid tensions within the OPEC cartel that are leading to an "apparent price war."
- While Gengaro expects minimal impact on oilfield activity for the balance of 2014, a continued slide in crude oil prices probably would hurt in 2015, especially in North America.
- Sector names finished broadly lower today: SLB -1.9%, HAL -5.2%, OII -0.5%, BHI -3.2%, SPN -3.9%, TTI -4.4%, CJES -3.5%, RES -6.2%, KEG +0.9%.
Jul. 23, 2014, 6:08 PM
Jul. 23, 2014, 5:04 PM
Jul. 22, 2014, 5:35 PM
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Jun. 11, 2014, 3:42 PM
- Oceaneering (OII +0.1%) trades narrowly higher after late yesterday's announcement of a new contract for its production control umbilical systems, which calls OII to supply a combined 31 miles in super-duplex steel tube umbilicals for FMC Technologies (FTI -0.1%) and its Jangkrik project in the Muara Bakau production-sharing contract area off the coast of Indonesia.
- Delivery is expected to begin before the end of the year and continuing through mid-2015; financial terms of the contract were not disclosed.
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