ModernGraham Valuation: Tidewater Inc. (TDW)
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of March 31, 2013, the Company had 328 vessels (of which 10 were owned by joint ventures, 51 were stacked and two were withdrawn from service) servicing the global energy industry.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 and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):
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 = 4/5
- 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 – PASS
Valuation Summary (Explanation of the ModernGraham Valuation Model)
Key Data:
| MG Value | $0 **Rare situation. Â See conclusion. |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $44 |
| Value Based on 0% Growth | $26 |
| Market Implied Growth Rate | 5.25% |
| Net Current Asset Value (NCAV) | -$29.01 |
| PEmg | 19.00 |
| Current Ratio | 2.26 |
| PB Ratio | 1.09 |
Balance Sheet – 9/30/2013Â
| Current Assets | $681,800,000 |
| Current Liabilities | $301,300,000 |
| Total Debt | $1,445,600,000 |
| Total Assets | $4,754,600,000 |
| Intangible Assets | $340,000,000 |
| Total Liabilities | $2,120,000,000 |
| Outstanding Shares | 49,580,000 |
Earnings Per Share
| 2014 (Estimate) | $3.86 |
| 2013 | $3.03 |
| 2012 | $1.70 |
| 2011 | $2.05 |
| 2010 | $5.02 |
| 2009 | $7.89 |
| 2008 | $6.39 |
| 2007 | $6.31 |
| 2006 | $4.07 |
| 2005 | $1.78 |
| 2004 | $0.73 |
| 2003 | $1.57 |
Earnings Per Share – Modern GrahamÂ
| 2014 (Estimate) | $3.04 |
| 2013 | $3.07 |
| 2012 | $3.60 |
| 2011 | $4.87 |
| 2010 | $6.17 |
| 2009 | $6.26 |
Conclusion:
Tidewater is a company that has had its earnings consistently fall over the recent historical period. Â This is a company that once had outstanding valuations when its earnings were rising from 2004 to 2009, but since 2009 the EPSmg (normalized earnings) have steadily dropped. Â It does appear that the earnings fall may be coming to an end, as the regular EPS have improved the last couple of years, and one would expect the ModernGraham valuation model to return a more attractive result in a year or two. Â However, as it stands now the historical growth does not support the market’s implied rate of 5.25% and in fact the negative growth rate seen historically is enough to knock down the valuation from the model to $0. Â As a result, any value from Tidewater at the current juncture is only justified by either the balance sheet or speculating; there is currently no basis in earnings for a positive value. Â That said, the company does impress from the angle of the Defensive Investor and Enterprising Investor requirements, having qualifed as a Defensive Investor. Â All investors should keep an eye on this company over the next couple years to determine if the valuation improves and if an opportunity for profit exists.
What do you think?  Do you agree that Tidewater Inc. is overvalued?  Is the company suitable for either Defensive Investors or Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.
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Disclaimer: Â The author did not hold a position in Tidewater Inc. at the time of publication and had no intention of entering into a position within the next 72 hours.
Photo Credit: Â Andrew Magill
