Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Tidewater Inc. fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Tidewater Inc. provides offshore supply vessels and marine support services to the offshore energy industry through the operation of marine service vessels. The Company conducts its operations through wholly owned United States and international subsidiaries. It provides offshore vessel services in support of all phases of offshore exploration, field development and production, including towing of, and anchor handling for, mobile offshore drilling units; transporting supplies and personnel necessary to sustain drilling, workover and production activities; offshore construction, ROV operations and seismic support, and a variety of specialized services, such as pipe and cable laying. As of March 31, 2013, the Company had 328 vessels (of which 10 were owned by joint ventures, 51 were stacked and two were withdrawn from service) servicing the global energy industry. The Company operates in four segments: Americas, Asia/Pacific, Middle East/North Africa, and Sub-Saharan Africa/Europe.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – PASS
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – FAIL
|Value Based on 3% Growth||$42.33|
|Value Based on 0% Growth||$24.81|
|Market Implied Growth Rate||4.20%|
|Net Current Asset Value (NCAV)||-$28.29|
Balance Sheet – 12/31/2013
Earnings Per Share
Earnings Per Share – ModernGraham
Tidewater is suitable for the Defensive Investor, having only failed the investor type’s earnings growth requirement. The company is also suitable for the Enterprising Investor by default, despite having failed both the debt to net current asset requirement and the earnings growth requirement. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should keep Tidewater on a watch list and feel comfortable proceeding with further research, including a review of 5 Low PEmg Companies for the Enterprising Investor and 5 Outstanding Dow Components. From a valuation perspective, the company does not perform very well, largely due to the lack of earnings growth over the last 5 years. The company’s EPSmg (normalized earnings) have dropped from $6.18 in 2010 to an estimated $2.92 for 2014, a change that clearly does not support the market’s implied estimate for 4.20% earnings growth. As a result, the ModernGraham valuation model finds that any value in the company must come from a source other than the earnings, though it should be noted that if the company can achieve a growth level of 3%, the value would be around $42 based on current EPSmg.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. What do you think? What value would you put on Tidewater Inc. (TDW)? Where do you see the company going in the future? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
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Disclaimer: The author did not hold a position in Tidewater Inc. (TDW) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.