Well Intervention Assets Will Secure Long-Term Contracts At Higher Rates

Key Takeaways

• Strong contract coverage for well intervention assets is expected to improve revenue and margins as legacy contracts are replaced.
  
• Growth in the Robotics segment, driven by demand for trenching and renewables, suggests potential for increased future revenue.
  
• Softening markets, regulatory uncertainty, and geopolitical challenges may reduce Helix Energy's revenue, margins, and future growth prospects.

Catalysts

An offshore energy services company, provides specialty services to the offshore energy industry in Brazil, the Gulf of Mexico, the East Coast of the United States, North Sea, the Asia Pacific, and West Africa regions.

• Helix Energy has secured strong contract coverage for their well intervention assets, entering into long-term contracts at higher market rates, which is expected to improve revenue and margins as previous legacy contracts roll off.
  
• The Robotics segment is projected to experience significant growth due to robust demand for trenching and renewables work, indicating potential for increased revenue and earnings in the coming years.
  
• Increased activity in the offshore oil and gas, as well as renewable sectors, provides Helix with opportunities to capitalize on higher rates for services, which should lead to an increase in revenue and improved net margins.
  
• The company’s strategic capital allocation plan includes using at least 25% of free cash flow for share repurchases, which is expected to enhance earnings per share and indicate confidence in future financial performance.
  
• Helix is assessing opportunities for geographic expansion and potential M&A in the renewable and offshore markets, which could drive long-term revenue growth and strengthen its market position.

Helix Energy Solutions Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Helix Energy Solutions Group's revenue will grow by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 11.0% in 3 years time.
• Analysts expect earnings to reach $170.0 million (and earnings per share of $1.09) by about March 2028, up from $55.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2028 earnings, down from 22.6x today. This future PE is greater than the current PE for the US Energy Services industry at 13.8x.
• Analysts expect the number of shares outstanding to decline by 0.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.41%, as per the Simply Wall St company report.

Helix Energy Solutions Group Future Earnings Per Share Growth

Risks

• The announcement of a softening rig market in 2025 and regulatory uncertainty in the U.S. wind farm market could potentially lead to decreased revenues and lower net margins.
  
• The U.K. North Sea Well Intervention market is expected to be weaker in 2025, leading to lower vessel utilization and potential decreases in revenue and earnings.
  
• Significant dry docks and maintenance periods projected for 2025 may increase capital expenditures, potentially affecting net margins and reducing free cash flow.
  
• The Shallow Water Abandonment segment is anticipated to experience a continued soft market, impacting revenue and contributing to overall lower financial performance.
  
• Geopolitical challenges and uncertainties in oil and gas spending could impact the company’s ability to secure new contracts, affecting future revenue and earnings growth.

Valuation

• The analysts have a consensus price target of $13.568 for Helix Energy Solutions Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.0, and the most bearish reporting a price target of just $10.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $170.0 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 9.4%.
• Given the current share price of $8.33, the analyst price target of $13.57 is 38.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.