26 November 2006

TDW: Analysis through Sept 2006

Tidewater (TDW), a rather interesting company, leases ships to firms involved in offshore energy production. When energy prices are high, offshore production becomes more economical, demand for maritime services increases, and TDW can charge more for its vessels. Similarly, when offshore production diminishes, TDW has to work a whole lot harder to find customers for its ships.

TDW's fiscal year ends on March 31. Therefore, September 30, 2006, marked the conclusion of the second quarter of their fiscal year 2007. With the financial reports for that quarter, our financial gauges displayed the following scores:
As was the case for COP, inventory data as expressed on a Balance Sheet -- marine operating supplies, in this case -- is not meaningful to our Cash Management analysis. The Current Ratio is 4.6, which is too much of a good thing by our standards. We have to wonder why they are holding so much cash. Could it be better employed buying more ships, or buying back common stock? Long-term debt is a worry-free 18% of equity. Accounts Receivable are 95 days worth of Revenues, which would be high for most industries, but it is down from 102 days at the end of the September 2005 quarter.

Revenue growth is a healthy 34 percent (and accelerating). Net Income growth is robust 64 percent (actually down from unsustainable rates of previous quarters). Growth in Cash Flow from Operations is a remarkable 100%. The three growth rates are all year-over-year values, and do not signify a single strong quarter. Revenue/Assets, at 42 percent, is at its highest level in more than four years.

As for profitability, the Accrual Ratio is +4.9 percent (we'd prefer a negative value), but down from +7 percent one year ago. The Return on Invested Capital is 15 percent, up substantially over recent years to a level not seen since 1999. Free Cash Flow/Equity is 11 percent, also up substantially over prior years, when negative ratios were typical. Operating Expenses/Revenue is at its lowest level since 1998.

In keeping with our normal practice, the Value score was computed using the $44.19 stock price on September 30. With that price, we saw a PEG ratio of a minuscule 0.13 and a Price/Earnings ratio of 8.2. This P/E was about half of the S&P 500's P/E, whereas TDW's median P/E is an 8 percent premium to the market. Price/Revenue, at 2.4, was a discount to its median of 2.8.

Not surprisingly, TDW's stock price has advanced nicely since the end of the quarter. As we report this analysis, the stock price is 52.80 (up 19.5 percent!). Are we too late? With the current price, the Value score drops from 20 to a still-strong 17. The P/E ratio is still below 10, and the PEG is a mere 0.15. Cheap.

Potential investors will have to decide for themselves whether this performance can continue.

No comments:

Post a Comment