25 January 2007

TDW: Analysis through Dec 2006

Tidewater leases ships to support offshore energy production. As we noted previously, the company signaled that earnings for the quarter ending 31 December 2006, which is the 3rd period of their 2007 fiscal year, would exceed Wall Street expectations. Tidewater has now released the income and other financial statements for the quarter, and, yes, they show that the company is exhibiting strong earnings growth.

When we last analyzed TDW, after the September 2006 quarter, the company logged an impressive Overall score of 73 points. Believe it or not, it rates even higher now.

Cash Management. This gauge moved up from 10 points from September. We actually suspect TDW has too much cash because the Current Ratio is an oddly high 4.8. It has been in the stratosphere for a long time, and we continue to wonder why. Long-term debt is a worry-free 17% of equity, so there isn't a compelling reason to use excess cash to pay down debt. Accounts Receivable are 91 days worth of Revenues, which would be high for most industries, but receivables have been coming down.

Growth. This gauge came down one point from September, but it is still at a lofty level. Revenue growth is a healthy 33 percent year-over-year. Net Income growth is robust 49 percent (actually down from unsustainable rates of previous quarters). Growth in Cash Flow from Operations is a remarkable 87%. Revenue/Assets keeps increasing; it is now 43 percent.

Profitability. This gauge edged up one point from September. Return on Invested Capital, which has now moved up for 8 straight quarters, is 16 percent. Free Cash Flow/Equity, which is also on a long upswing, is now 12 percent. Operating Expenses/Revenue, at 67 percent, is at its lowest level since 1998. While we would rather see a negative Accrual Ratio, the drop to 5 percent from last year's 7 percent, is indicative of improvements to earnings quality.

Value. This gauge, based on the 31 December stock price of $48.36, held constant at a strong 20 points. The Price/Earnings ratio is a mere 8.1, which is only about half of the S&P 500's P/E . The PEG ratio is a minuscule 0.16, suggesting great value. Price/Revenue, at 2.5, is less than its median of 2.7.

With robust scores showing on each category-specific gauge, readers won't be surprised to learn that the Overall score increased to a superlative 75 points.

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