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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Big Dog who wrote (3046)	11/18/1997 9:48:00 AM
From: SJS	Read Replies (1) \| Respond to of 95453

TideWater fans: from briefing.com: Ride the Tide Daily commentary updated November 18, 1997 We continue to advise seeking out undervalued, low beta stocks given the still fragile state of the U.S. equity market. However, in a marketplace defined by historically high valuations it is difficult to find investment candidates that meet these simple requirements. It is even more taxing to find stocks that not only meet these criteria but sport strong relative strength and impressive earnings momentum. In Tidewater Inc. we have unearthed just such a company. Company Brief Tidewater Inc. (TDW 63 3/4) operates the largest fleet of vessels serving the offshore energy business. The company's marine service and support functions include towing, anchor handling, transporting supplies and supporting pipelaying and construction activities. The marine services division accounted for nearly 95% of FY97 revenues. Tidewater is also one of the largest suppliers of compression equipment and services to the natural gas industry. In FY97 the compression segment produced 5% of revenues. Management recently announced that it is pursuing alternatives for monetizing its investment in this division so that it can concentrate its full attention on the fast-growing marine services division. The company's explosive revenue and earnings growth over the past few years is depicted in the table below. Adding to the company's attractiveness in these turbulent times for the market, are its near 1.0% dividend yield and its 0.98 beta. Revenue (in thousands of U.S. dollars) Quarter: 1995 1996 1997 1998 Jun 144,837 155,093 175,894 256,597 Sep 141,054 160,760 193,872 297,975 Dec 146,359 166,427 212,429 Mar 152,358 161,167 220,815 Total 584,608 643,447 803,010 Earnings (in U.S. dollars) Quarter: 1995 1996 1997 1998 Jun 0.25 0.28 0.39 0.83 Sep 0.23 0.36 0.53 1.05 Dec 0.23 0.39 0.69 Mar 0.13 0.20 0.74 Total 0.84 1.23 2.35 Smooth Sailing Ahead As the world's leading provider of service vessels, Tidewater has been able to translate strong demand for drilling into dynamic earnings growth. Over the past couple of years, domestic utilization rates have climbed from the 70% area to the 86%-90% range, while dayrates have more than doubled to the $9000 range. Though most of the gains in this geographic region have been realized, pricing conditions in the US are expected to remain firm as long as oil prices don't spend a sustained period trading above $24 or below $16 per bbl. Where the company is likely to experience significant earnings growth going forward is in its foreign operations where utilization and dayrates have lagged well below Gulf of Mexico levels. But the tide is turning in the foreign marketplace, as utilization has climbed from the mid-70% area to above 85% and dayrates have risen from the $3000-$3500 range to the $4000-$5000 area. As foreign levels move more in line with domestic rates, Tidewater will continue to post strong double-digit earnings growth. The company's recent acquisition of 100 foreign service vessels from O.I.L. Ltd (bringing the total number of foreign vessels to over 420) should prove timely in that it increases the company's exposure in a number of growth areas such as West Africa, Brazil, Southeast Asia and provides entry into the North Sea market. Valuation Steadily rising U.S. dayrates, the faster than expected increase in foreign utilization/dayrates rates and the company's dominant position in its marketplace, help to explain why the street has been raising its earnings estimates for TDW. The change in the median estimate for FY98 over the last month alone was an eye-opening $0.30. According to Zack's the street now expects Tidewater to earn $4.00 per share in FY98 and $5.07 in FY99. Based on these estimates, TDW sports attractive forward p/es of 15.9x and 12.6x. Since 1991, the stock's average p/e has been closer to 24x. The stock's average relative p/e over the same time frame has been 1.55. Today it sits at 0.83 (using FY98 estimates). In addition to trading at moderate discounts to the market and its historical norms, TDW's PEG (p/e to long-term growth) is only 0.73. Balancing the industry's history of volatility, with current conditions and the company's strong growth prospects, Briefing contends that the stock will experience significant multiple expansion as the overseas story unfolds and the company delivers on its earnings promise. Conservatively, we expect the company to trade at 90% of its ltgr or a p/e multiple of 19.8. Given this assumption, our upside target over the next 12-months is 79-80. Longer-term the stock has upside potential to the 100 area. Risks Increased supply. Dramatic and sustained change in price of oil. Debt burden resulting from acquisitions makes company more vulnerable to shift in industry conditions. Significant slowdown in the economy. Market risk. Conclusion Though TDW fell from its recent 52-wk high during the marketwide retreat, the stock continued to exhibit impressive relative strength. As such, risk tolerant, growth-oriented investors seeking above market capital appreciation might want to consider taking advantage of the market correction to add this industry leader to their portfolios. The oil drilling services industry does have a record of volatility, and recent events in the Gulf could prove troubling. But considering the discounted multiples, favorable industry conditions, robust earnings potential and solid management team, Briefing expects TDW to test the 79-80 level over the next 12-months.