Today’s recommendation is entering turnaround territory, with increasing revenues, yet trading at a low valuation.
Hercules Offshore, Inc. (HERO)
from The Cheap Investor
Hercules Offshore, Inc. (HERO) provides shallow-water drilling and marine services to the oil and natural gas exploration and production industry worldwide. Its services comprise oil and gas exploration and development drilling, well services, platform inspection, maintenance, and decommissioning services in various shallow-water provinces. The Company operates a fleet of 38 jackup rigs and 24 liftboats.
Hercules Offshore has a fair balance sheet with $1.25 per share in cash, a book value of $5.16 and a large debt of $1.2 billion—due to the huge costs of its jackup rigs.
Insiders own about 5% of the 159.8 million total shares outstanding, and 218 institutions own 77% of the float. On the negative side, the stock price is in a downward trend, as the Company took a $114 million non-cash impairment charge in the fourth quarter. However, for the year end, the loss for 2013 was improved by 47%, when compared to the previous year.
John T. Rynd, Chief Executive Officer and President of Hercules Offshore stated, “2013 was a pivotal year for our Company, highlighted by efforts to modernize our fleet, substantially expand our revenue backlog and rationalize our asset mix to better align resources to segments that offer the most attractive long-term investment opportunities. In the U.S. Gulf of Mexico, we have secured pricing increases across a number of our contracted rigs, and leading edge dayrates are expected to be relatively stable. For 2014, we expect to generate solid cash flow based on our existing contract coverage and current outlook.”
Hercules Offshore is a huge company with good increasing revenues. We think institutional investors have overreacted to the write-off and have dumped large amounts of shares, causing the price to plunge near its low. It’s very attractive at this level. If Hercules Offshore returns to profitability, it should move at least 50 to 100% from this level.
Bill Mathews, The Cheap Investor, www.thecheapinvestor.com, 847-697-5666, March 2014