Underinvestment And Energy Security Will Drive Multi-Basin Offshore Growth

Key Takeaways

• Anticipated transformative acquisitions and disciplined capital allocation are positioned to boost scale, cash flow, and shareholder returns significantly beyond market expectations.
  
• Scarcity of new vessels and rising offshore demand could trigger sharp increases in day rates and utilization, unlocking substantial earnings and margin upside.
  
• Accelerating energy transition, fleet aging, market oversupply, shifting capital, and geographic concentration threaten Tidewater's revenues, margins, financing, and earnings stability.

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.

• Analysts broadly agree that M&A is a key driver, but the company's current balance sheet flexibility and management's growing optimism mean Tidewater could close multiple transformative acquisitions in the near term, creating rapid scale and dramatically expanding revenue and cash flow faster than consensus expects.
  
• While consensus assumes stable day rates supported by tight global supply, the reality is that with essentially zero meaningful vessel newbuilds expected until at least 2027, any uptick in offshore activity could cause an explosive, step-change surge in day rates and utilization, unlocking margin expansion that significantly exceeds analyst models.
  
• Tidewater's operational leverage is understated, as even minor increases in vessel utilization or day rates will massively amplify free cash flow due to high gross margins-creating meaningful upside to forecasted earnings as offshore development projects in Africa, Asia-Pacific, and the Americas accelerate.
  
• Long-term underinvestment in global oil supply and the renewed emphasis on energy security in both developed and emerging markets is setting up a supercycle for offshore project FIDs, positioning Tidewater's modern, geographically diverse fleet as an essential bottleneck provider with sustainable pricing power and multiyear visibility on high-margin contracts, supercharging forward revenue and earnings stability.
  
• Management's demonstrated capital allocation discipline, including an ambitious $500 million share repurchase program paired with robust quarterly free cash flow generation, is set to drive a powerful reduction in share count and EPS re-rating, with buybacks likely to be fully funded by operations even before considering incremental EBITDA from potential acquisitions.

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 6.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 14.6% today to 23.7% in 3 years time.
• The bullish analysts expect earnings to reach $383.4 million (and earnings per share of $8.74) by about August 2028, up from $198.9 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 9.4x on those 2028 earnings, down from 14.2x today. This future PE is lower than the current PE for the US Energy Services industry at 12.2x.
• Analysts expect the number of shares outstanding to decline by 5.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.78%, as per the Simply Wall St company report.

Tidewater Future Earnings Per Share Growth

Risks

• Accelerating global transition toward renewable energy and decarbonization targets could lead to lower offshore oil and gas demand, putting long-term pressure on utilization rates for Tidewater's core offshore support vessels and negatively impacting revenue growth and vessel day rates.
  
• Tidewater's fleet continues to age and the need for substantial capital expenditures on modernization is only partially offset by current capex levels, which risks higher maintenance costs and operational downtime, potentially reducing net margins and future earnings.
  
• Persistent overcapacity and competitive pricing in the global offshore vessel market, as well as a shift by oil majors toward onshore and shale projects, may prevent sustained increases in day rates and vessel utilization, ultimately weighing on revenues and earnings potential.
  
• An increasing proportion of ESG-driven capital is moving away from fossil fuel-linked businesses, which could make it harder for Tidewater to secure favorable financing terms or attract investors, reducing the company's market value and placing upward pressure on interest expense in the long run.
  
• The company's high customer concentration, ongoing regional volatility (such as slowdowns in Africa and potential conflicts in the Mediterranean), and limited geographic diversification expose Tidewater to heightened contract risk and regional downturns, increasing revenue and cash flow volatility.

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 $35.0.
  
• 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 $383.4 million, and it would be trading on a PE ratio of 9.4x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $56.88, the bullish analyst price target of $70.0 is 18.7% 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.