Fleet Modernization And Rising Subsea Demand In 2025 Will Strengthen Competitiveness

Key Takeaways

• Strategy to upgrade fleet and repurchase shares aims to enhance competitiveness, efficiency, and EPS through better asset utilization and cash flow.
  
• Demand growth in subsea work and vessel supply constraints could drive revenue and margin improvements, supported by balance sheet refinements and strategic acquisitions.
  
• Regional demand disparities and potential reductions in offshore drilling could affect revenue stability and profit margins, with financial flexibility constrained by debt management needs.

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 strategy to dispose of older vessels and acquire newer, higher-spec vessels is expected to increase future revenues and margins by enhancing the fleet's competitiveness and operational efficiency.
  
• The ongoing share repurchase program and consideration of additional capital deployment strategies could improve earnings per share (EPS) by reducing the share count and efficiently utilizing cash flow.
  
• Expected demands in the subsea and production-related work and new FPSO installations forecast future revenue growth, particularly in the back half of 2025, suggesting a stronger demand environment.
  
• The tightening supply market with limited newbuilds and vessel attrition could allow for improvements in day rates, positively impacting revenue and gross margins as demand outpaces supply in the coming years.
  
• The balance sheet improvements and potential refinancing plans could reduce interest expenses and improve net income margins, while enabling more strategic acquisitions and shareholder returns.

Tidewater Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tidewater's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.4% today to 23.7% in 3 years time.
• Analysts expect earnings to reach $360.5 million (and earnings per share of $7.0) by about April 2028, up from $180.7 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 10.5x on those 2028 earnings, up from 9.4x today. This future PE is greater than the current PE for the US Energy Services industry at 10.0x.
• Analysts expect the number of shares outstanding to decline by 2.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.77%, as per the Simply Wall St company report.

Tidewater Future Earnings Per Share Growth

Risks

• The offshore drilling activity is projected to be more muted in 2025 compared to what was anticipated, which could lead to a reduction in demand for offshore vessels and potentially impact revenue and profit margins.
  
• The regional demand disparity, with significant improvements in West Africa and the Middle East but pullbacks in Asia Pacific and the Americas, may continue to create uneven revenue performance across regions, potentially affecting overall earnings stability.
  
• The anticipated softness in demand at the start of the year, particularly due to seasonal factors and regional-specific challenges such as the U.K. tax and regulatory changes, could lead to pressure on day rates and potentially lower revenue growth.
  
• Debt-related constraints, including the management of outstanding debt, potential refinancing needs, and guarding against increased leverage, may impact financial flexibility, leading to potential constraints on net margins and shareholder return strategies.
  
• The possibility of fewer offshore rigs working in 2025 and potential pockets of price pressure depending on the duration of offshore activity deceleration may challenge the company's ability to push day rates upwards, potentially impacting future revenue and profit margins.

Valuation

• The analysts have a consensus price target of $64.429 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 $45.0.
• 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 $360.5 million, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 7.8%.
• Given the current share price of $32.83, the analyst price target of $64.43 is 49.0% 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.