Global Energy Demand Will Elevate Modern Offshore Vessel Operations

Key Takeaways

• Tight offshore vessel supply and rising global energy demand enable higher utilization, pricing power, and revenue growth for Tidewater.
  
• Modernized fleet, long-term contracts, and disciplined capital management enhance market position, margin expansion, and per-share value.
  
• Reliance on offshore oil and gas amid the global energy transition, regulatory pressures, and an aging fleet exposes Tidewater to significant revenue, margin, and competitive risks.

Catalysts

Provides offshore support vessels and marine support services to the offshore energy industry through the operation of a fleet of offshore marine service vessels worldwide.

• Tightening offshore vessel supply, due to both limited newbuild orders and accelerated retirement of older, less efficient vessels, should allow Tidewater to increase utilization rates and push day rates higher as demand outpaces supply, translating directly into stronger revenue growth and higher gross margins over time.
  
• A sustained global emphasis on energy security and diversification of supply sources is driving long-term commitments in offshore exploration and production, with Tidewater capturing multi-year contracts in high-growth regions such as West Africa, the Middle East, and South America, supporting a robust backlog and enhanced revenue visibility.
  
• Investments in fleet modernization and technology upgrades position Tidewater as a preferred partner for increasingly technical deepwater and environmentally stringent projects, which should expand market share and allow the company to achieve premium day rates, positively impacting both revenue and net margin expansion.
  
• Active capital management, including significant share repurchases funded by strong free cash flow, supports per-share value accretion and creates the potential for further increases in earnings per share as Tidewater continues to deleverage and optimize its balance sheet.
  
• Ongoing global energy demand growth, particularly in emerging markets, ensures a structural need for offshore development, underpinning a multi-year upcycle in offshore vessel utilization and pricing that is likely to materially increase Tidewater’s revenues, operating cash flows, and long-term earnings power.

Tidewater Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Tidewater compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Tidewater's revenue will grow by 5.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 13.0% today to 24.1% in 3 years time.
• The bullish analysts expect earnings to reach $387.6 million (and earnings per share of $9.47) by about July 2028, up from $176.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 9.2x on those 2028 earnings, down from 13.8x today. This future PE is lower than the current PE for the US Energy Services industry at 11.3x.
• Analysts expect the number of shares outstanding to decline by 5.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.4%, as per the Simply Wall St company report.

Tidewater Future Earnings Per Share Growth

Risks

• The acceleration of the global energy transition towards renewables threatens to meaningfully reduce future investment in offshore oil and gas, which could shrink Tidewater’s addressable market and put sustained downward pressure on the company’s revenues over the long term.
  
• Increasing regulatory and societal pressure to decarbonize energy systems may force capital and financing to dry up for offshore fossil fuel projects, leading to reduced long-term contract opportunities for Tidewater, negatively impacting revenue visibility and backlog.
  
• Tidewater’s limited diversification beyond offshore oil and gas exposes the company to heightened earnings and revenue volatility in the event of a structural decline in hydrocarbon demand caused by secular shifts toward green energy and alternative transportation technologies.
  
• The company’s aging fleet requires high ongoing capital expenditures for environmental compliance and maintenance, which could erode net margins and reduce free cash flow, especially if vessel utilization falls as the industry decarbonizes or faces regulatory disruption.
  
• Ongoing industry consolidation and prolonged periods of offshore vessel oversupply could further intensify competition and depress day rates, squeezing Tidewater’s profitability and pressuring both revenues and operating margins in future years.

Valuation

• The assumed bullish price target for Tidewater is $70.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Tidewater's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $70.0, and the most bearish reporting a price target of just $30.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $387.6 million, and it would be trading on a PE ratio of 9.2x, assuming you use a discount rate of 7.4%.
• Given the current share price of $49.32, the bullish analyst price target of $70.0 is 29.5% 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.