Wednesday, September 30, 2015

Recommended September Buy: Oceaneering

Ticker OII (NYSE)
Fiscal Year End December
Recent price (Closing Price on September 30, 2015) $39.28
Market Capitalization $3.97 Billion
52 week range $37.00 – $72.19
Enterprise Value to EBIT (last full year) 7.5
EV to EBIT (7 year average earnings) 11.5
Enterprise Value to sustainable Free Cash Flow (last full year) 9.6
EV to SFCF (7 year average earnings) 17.0
Enterprise Value to Book 2.8
EV to Book (7 year average Book value) 3.1

Having originated as a group of diving services companies, Oceaneering is now a provider of equipment and services to the offshore oil and gas industry. According to its filings, the company has over a third of all Remotely Operated Vehicles, small submersible vehicles for deepwater tasks, in the world. It also provides and rents out other specialty offshore oilfield products, as well as services ranging from installation and maintenance to testing and inspection. Finally Oceaneering also uses its marine expertise to provide services to the US Navy, NASA and the theme park industry.

I picked Oceaneering for notching a score of 8 on Alpha Architect’s) tweaked Piotroski F-Score. It came up short only on having higher Long term debt and lower total asset turnover than in the previous year. Oceaneering is undervalued based on its ratio of Enterprise Value to Average EBIT, which is just under 12 times currently, while I estimate it to be worth around 17 times its average EBIT. It also does not seem to be overvalued based on its ratio of Enterprise Value to Average Book value. Oceaneering’s lowest Return on Invested Capital in the past 10 years was 13% and it has been much higher most other years. Despite the slump in oil prices, Oceaneering’s operations and profits have not been hurt nearly as much as other companies. It should still be able to generate returns of around 14% this year. Should oil prices rebound in the next couple of years, these numbers would be higher but the company is still generating enough profitability in the current environment. Oceaneering constitutes a buy at below $42 per share.

Disclosure: I own shares in Oceaneering

Oceaneering, Sept 2014 to Sept 2015