Tuesday, July 27, 2010

Atwood Oceanics-A Bright Spot in a Murky Gulf

With the recent BP spill devastating oil company's stock prices around the globe, where does one look for a solid oil investment? With much debate about regulation on the horizon, these are tough waters to navigate in terms of finding a solid investment. Well folks look no further. Her name is Atwood Oceanics. I will attempt to break her down by using some simple analysis to generate a future outlook while explaining ATW's strong growth prospects.

We will begin with a simple screener I created, sorted by market cap. Although Atwood is one of the smaller companies out there, she trades at around $27-$28, with a 52-week high of $40.58 reached in April. But lets start out with something I think is very important, the long term debt to equity ratio. As you can see here, ATW’s is way below the average of 26 “Bloomberg Peers” I used in my study. With less debt in the future, the company will naturally be more profitable. It should also be noted that I understand having debt as a means of financing is one way a company can expand, however it seems ATW has theirs in check. ATW’s earnings per share is 3.91, also above the average surveyed here.

Looking at graph of the price along with a few simple moving averages, we are able to see the ATW had no problem blowing through the 50-day SMA last week. The next test will come at the 100-day MA, at around $31. The stock was last trading at this price in early-mid May. I don’t think it will have a problem breaking through the 100-Day, which would be an 14% increase (from the time of this writing). With the 200-day MA at over $33 a share, there is clearly room to the upside. This stock is trading extremely cheap and would be a steal at anything below $28.

ATW reports earnings on August 4. They have beaten 10 of the last 12 estimates. Last quarter, they destroyed earnings coming in $1.02 vs estimates of $0.938 and the price jumped over 4%. Estimates from the period ending June 2010 expect ATW to report earnings at $0.977 a share.

Looking at their contracts and in turn their growth prospects, we can see from the map below they have 9 of their 11 rigs scattered all over the globe. Last Monday it was reported that one of their rigs, the Vicksburg, would be granted a 9-month contract extension through June 30, 2011 at a dayrate of $90,000. A month back, ATW announced that the Beacon, another beautiful rig, would be contracted in work offshore in Suriname and Guyana for a minimum of 210 days at a dayrate of $115,000. The current rig in the Gulf, the Richmond, is scheduled to being work in late July as it finishes up inspection.

Last week, Atwood appointed Mark Mey as the new VP and CFO. His new position will be effective August 11. Mr. Mey currently has experience in the offshore industry, having served on the board of Scorpion Offshore.

All in all, it is clear to see how Atwood Oceanics is growing consistently and has a strong and profitable future ahead. They have a solid business model and are striving toward the future with a bright new look to their company, by shaking up management (I do recognize this may sometimes be perceived as a negative aspect, but with a solid businessman in Mark Mey, a negative reaction is highly unlikely). These new contracts that have been acquired, including Mr. Mey, all add up to a solid investment.


No comments: