OYO Geospace: Positioning for Greatness

| About: Geospace Technologies (GEOS)

Things haven't been this good for oil companies in the United States in some time. Oil hitting triple digits, and countries like China purchasing more automobiles than ever before have created some excitement with respect to oil use. Its also developed the same feelings in the palladium market (see here and here), but that conversation is for another time.

Oil is not the only way to play this increased demand, as there are plenty of miners that look very good going forward. Samson oil (NYSEMKT:SSN) or Triangle Petroleum (NYSEMKT:TPLM) are a couple of my speculative favorites. For those who want names on a more solid footing, these two (EOG Resources (NYSE:EOG) and Continental Resources (NYSE:CLR)) should see nice growth based on proven assets.

There is a plethora of services provided to the oil exploration and production industry. From rigs to pump trucks, there are several ways to get oil out of the ground. All you and I need to be concerned with is how to turn this into cash. OYO Geospace Corp has been popping up on radars, and I think this company may deserve a look. Zack's recently did a piece on this company highlighting OYO Geospace Corporation's beat by 24%. I contend that this is just the start, as oil companies are spending money based on higher oil prices. Seeking Alpha's own Kurtis Hemmerling coined this company a "Strong Buy" back on February 10th.

About OYO Geospace

OYO Geospace is a designer and manufacturer of seismic reservoir and exploration monitoring equipment. It also manufactures thermal imaging equipment. The company also provides a wide array of products that support its base business. OYO Geospace is incorporated in Texas but also operates in Russia, Canada, England and China.

Over the past five years, OYO Geospace achieved over half of its revenue from its traditional seismic business. In the past three years, a major increase in revenue has been seen with respect to seismic GSR. From 2005 to 2007 a marked increase in revenues were seen, but this decreased in 2008 and 2009. Revenue has begun to turn around in 2010, and this could just be the beginning.

OYO Geospace has a PE ratio of 30.9, with a forward PE of 21.69. Five year PEG ratio is .67 (Yahoo Finance). More importantly, OYO Geospace has beat earnings for several consecutive quarters:

  • March 2010- 18.4%

  • June 2010- 72.3%

  • September 2010- 32.3%

  • December 2010-23.8%

OYO Geospace has strong cash generation. In 2009, it had $17.3 million in operating cash flow. Through the first 9 months of 2010, it had already produced $17 million. At that time, cash on hand was $23.8 million. This company serves all major seismic customers and markets. OYO Geospace also has international exposure to national oil companies on virtually every continent. OYO Geospace carries a wide array of land and marine applications. Sensor, cable and marine products are all part of its traditional seismic offering. Geospace seismic recorders seem to be the main driver of growth for this company. These products increase crew productivity, decrease environmental footprint, and increase total channel count. OYO Geospace believes it will be able to increase growth through this part of the company by adding customers in these markets:

  • Seismic Exploration

  • Seismic Reservoir

  • Vibration Monitoring

This part of the business has added 11 new customers. 47000 channels have been ordered, rented or purchased. OYO Geospace will be adding to its current rental market as 7900 channels have already been rented, and rental fleet additions will be increased to 15000. Ocean bottom recorders have been added to this offering to further increase growth.

Non-seismic emerging markets have been growing also. Thermal solutions were $13 million of 2009 full year revenues. Industrial sensors and cables were $6.3 million of revenues for 2009. This offering centers on earthquake monitoring and home land security. Offshore cables were $1.7 million of 2009 revenues.

OYO Geospace's business model is centered around its traditional business. This business of seismic exploration products is historically 50% to 60% of revenues. As land product sales have been increasing, some of the higher margin marine product sales have been slow. This may be what to watch going forward as it adds significant bottom line dollars. Non-seismic products have been selling well. OYO Geospace receives large revenues per sale with respect to the overall business. This can cause large variations with respect to its overall results. These items are:

  • Land and Marine Nodal Data Acquisition systems- $1 to $20 million

  • New OBC Marine Acquisition Systems- $1 to $20 million

  • Reservoir Characterization Products- $1 to $20 plus million

Although the future looks bright for this company, I would exercise caution. This company's revenues and earnings could vary significantly if one or two of its major customers were to delay ordering. Even with these prospects, it seems OYO Geospace has outperformed for several quarters and there is no indication this situation will change. As long as demand continues, we will see continued strength in oil prices. Plus, companies with this size of market capitalization can be candidates for acquisition.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Tagged: , Scientific & Technical Instruments
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here