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Non-Tech : Hvide Marine HMAR - High Growth, Undervalued
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To: Don MacNeil who wrote (63)11/29/1997 7:25:00 PM
From: Grommit  Read Replies (1) of 547
 
No company can grow at 40% forever because soon they would become larger than anything in the universe. We are seeing extra growth in the sector due to the cylclical nature of the business. This sector is valued with a lower PE possibly because this growth is seen as part of the cycle. This is true of all cyclicals when earnings are at the peak. Are we at the peak?

These earnings are thru acquisitions (more boats) and more rigs (more demand) and higher prices (day rates). I see the acquisitions and rigs as long term and not likely to cycle down real soon. I do not know enough about the dayrate economics to make a call if these day rates are sustainable long term. But I think that the rates are sustainable over then next 3 years based on qty of rigs and boats on order. (I picked up this opinions from reading this conclusion from a couple of analysts -- hope they are right!)

Another matter is the huge increase in HMAR's projected earnings over the next 4 quarters. Last 4 qtrs being $1.43 and next 4 being $2.58. That's a whopping 76% (source - Zacks). Do we believe it? I dunno, but mgmt did say that .56 in this qtr was in the bag. (And even .56 per qtr is a fine run rate for a company priced at $30.) So I believe that something between $2.20 and $2.60 is quite possible.

Will this company grow faster than the industry? I think so. Basing my conclusion on the fact and the hope that the analysts have given some thought and received some guidance from the company, seeing the acquisitions and hearing mgmt intent from the conf calls.

Will this industry grow faster than the overall economy over the next few years? I think so. New drilling rigs are on order to insure it and from what I gather not enough new boats are on order to cover the growth.

And I do not care which analysts gave the 20% rate and who gave the 45%. They have their own methods and assumption and their particular projection is quite irrelevant anyway. No one can see out more than a couple of years in this business. And the visibliity is even less if mideast political or OPEC events make a sudden impact.

..........
Sorry to be so long winded. Although the analysts see HMAR growth 50% in 1998 (1), I would be content with less. As for 1999 -- even growth at industry levels would be quite fine, but I suspect that they HMAR will beat the industry thru accretive acquisitions and operating efficiencies.

For a company whose trailing PE is 20ish, this is quite a fine outlook to say the least.

(1) total year consensus 1997=$1.77; 1998=$2.80; is 58%
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