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Tidewater Is Trading At 75% Of Tangible Book Value But Watch Angola And Industry Oversupply

Oct. 02, 2014 9:51 AM ETTidewater Inc. (TDW)4 Comments
Martin Vlcek profile picture
Martin Vlcek


  • Tidewater is trading at deep discounts using several valuation methods.
  • However, despite negative offshore drilling services sentiment, the future industry outlook is very uncertain and the situation could get much worse before Tidewater stock bottoms.
  • Tidewater also has company-specific risks such as high share of revenues from the troubled Angola and other politically and economically unstable regions, such as Venezuela and Brazil.
  • Therefore, investors should start buying carefully with a plan to spread out the purchases in time.
  • Over several years, the stock offers at least a 27% upside plus 2.5% dividends to patient investors with a current DFCF target price of $49.50 per share.

Tidewater, Inc. (NYSE:TDW) is a global provider of vessel and support services to offshore drilling companies. Tidewater has been established since 1956 and provides services in support of offshore exploration, field development and production, including towing of and anchor handling for mobile offshore drilling units, supplies and personnel, as well as a broad range of other related support services throughout the lifetime of drilling operations. Approximately 57% of vessel revenue comes from deepwater and 35% from towing supplies, with other services accounting for 8%.

Investment thesis

With the U.S. dollar index gaining another half a percentage point recently and even more against the Euro amid global growth concerns and tighter U.S. monetary policy, the pressure on commodity prices, including oil and natural gas, from the strengthening dollar does not seem to be abating anytime soon. However, the slump in stock prices of offshore drilling oil and gas services companies has created a multi-year buying opportunity for patient investors.

Tidewater, one of world's largest offshore drilling services companies, currently trades at a steal valuation based on multiple valuation methods, including a DCF fair value and historical comparison. It is also one of the cheapest plays within its peers. The stock trades at 75% of its tangible book value which mostly consists of modern vessels. The estimated fair value using DFCF analysis is ~$49.50, offering a ~27% upside plus a 2.5% dividend. By historical standards, Tidewater is ~40% undervalued and trades at the lowest P/B and P/S values in the past 10 years, including the 2008/2009 period with P/B of 0.7 and P/S of 1.31. Forward P/E is 7.5x.

There are very few industries so out of love with investors and so undervalued at the moment as the portions of the oil and gas industry services. Perhaps only the mining industry is in

This article was written by

Martin Vlcek profile picture
MPORTANT DISCLAIMER: Martin is not a Registered Investment Advisor, Broker/Dealer, Securities Broker or Financial Planner. The Information on SeekingAlpha.com or elsewhere is provided for information purposes only. The Information is not intended to be and does not constitute financial advice or any other advice, is general in nature and not specific to any individual. Before using Martin's information to make an investment decision, you should seek the advice of a qualified and registered securities professional and undertake your own due diligence. None of the information provided by Martin is intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any security, company, or fund. Martin is not responsible for any investment decision made by you. You are responsible for your own investment research and investment decisions.

Analyst’s Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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