Unlock: Tidewater (TDW) Trade Idea
(This TDW Trade Idea was issued on October 15 for $1.00. The November 15 Puts were closed today for $2.30 or +130% gain)
Sector: Offshore Equipment and Services
Current Price: $16.14
Stop Loss: $18.00
Time Duration: 36 Days
Trade Idea: Buy TDW November 15 Puts for $1.00 or less.
Buyer of 1,000 November 15 puts paid $1.05 today ahead of earnings on November 3. This follows buyer of 1,000 contracts two days ago who remains in open interest.
We all know offshore oil industry is in deep cyclical downturn. Even if oil was to make significant recovery, chances are land drillers or shale gas companies will be first to see the uptick. It will take a long time for offshore drillers and equipment providers to get any traction from capex spending from big integrated oil stocks. The key risks to TDW include: (1) low commodity prices and declining offshore spending, (2) cost controls, (3) higher than expected drydock activity, (4) declining rig demand and meaningful vessel oversuply, (5) political risk in Africa relating to TDW’s Sonangol JV.
On October 6, Wells Fargo after channel checks cut earnings estimates with following summary:
“We are adjusting EPS for our offshore drilling universe to primarily account for recent contract status updates, downtime and utilization adjustments, rig cancellations (West Mira), and the blend and extend on the Atwood Achiever announced last week. Additionally, we are lowering TDW and HOS 2015 EPS to primarily reflect weaker utilization assumptions.”
TDW FY2016 EPS was cut from ($0.40) Loss to ($0.52) Loss, which simply means the worst is yet to come for the stock. Wells Fargo wasn’t the only one. Here is brief note from Credit Suisse on August 12:
“We are lowering our FY16/FY17 EPS to $0.26/$0.10 (from $0.65/$0.52) to account for updated guidance and utilization softness across basins. Mgmt was not shy about challenges facing the industry or the potential for it to lead to acquisition opportunities. And while the dividend is always being looked at, $47M in annual dividends doesn’t move the needle on liquidity. Bottom line, while the OSV market is stressed, TDWs divy looks safe near term.”
But what you will find most interesting is that out of 18 analysts that follow this stock, 16 of them still have Buy or Neutral ratings. Only 2 have Sell ratings. Meaning there are still many bulls sitting here that need to be forced out.