M&A And Fleet Optimization Will Boost Middle Eastern Opportunities

Key Takeaways

• Strategic focus on M&A and geographic diversification could drive long-term growth and improve operational efficiency.
  
• Fleet optimization and successful tenders in strong markets like Brazil support revenue and earnings growth.
  
• Increased macroeconomic uncertainty and tariffs, along with regional demand challenges and cash flow issues, could negatively impact revenue 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.

• The company's strategic focus on M&A could lead to value-accretive acquisitions, underpinning long-term revenue growth and enhancing consolidated cash flows.
  
• Tidewater's geographic diversification and scalable infrastructure provide operational flexibility, potentially improving future net margins and positioning them to capitalize on attractive regional markets.
  
• Their proactive fleet optimization, including potential vessel relocations and disposals, may enhance utilization rates and operational efficiency, positively impacting overall earnings.
  
• Contract renewals and new tenders, particularly in stronger basins like Brazil and the Middle East, are expected to maintain higher day rates, supporting revenue growth.
  
• The completion of share repurchases, despite existing debt limitations, indicates management's confidence in intrinsic value and can support future earnings per share growth.

Tidewater Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tidewater's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.0% today to 23.4% in 3 years time.
• Analysts expect earnings to reach $357.5 million (and earnings per share of $5.89) by about May 2028, up from $176.3 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $261 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.2x on those 2028 earnings, down from 11.6x today. This future PE is lower than the current PE for the US Energy Services industry at 10.6x.
• Analysts expect the number of shares outstanding to decline by 3.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.42%, as per the Simply Wall St company report.

Tidewater Future Earnings Per Share Growth

Risks

• Increased macroeconomic uncertainty and U.S.-led tariffs could disrupt global trading patterns, impacting customer investment plans and ultimately causing fluctuations in demand for offshore vessels, which could negatively affect future revenue.
  
• Ongoing share repurchase programs might limit available capital for more accretive investments such as mergers and acquisitions, potentially affecting long-term revenue growth and margin expansion due to missed opportunities.
  
• The instability and unclear strategies of key market players like Pemex might result in short-term demand-side challenges in certain regions, adversely impacting revenue and utilization rates.
  
• The persistent backlog in outstanding receivables, such as the $35.1 million owed by the main customer in Mexico, suggests potential cash flow issues, which could reduce overall liquidity and impact free cash flow generation.
  
• Fluctuating vessel utilization and day rates, particularly in regions like the North Sea or from competition on Petrobras tenders, can lead to revenue volatility and margin pressure, potentially impacting future earnings stability.

Valuation

• The analysts have a consensus price target of $58.857 for Tidewater 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 $76.0, and the most bearish reporting a price target of just $30.0.
  
• 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 $357.5 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 $40.23, the analyst price target of $58.86 is 31.6% 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.