Atwood Oceanics drills for deepwater dollars

Multiyear contracts provide this oil services company with consistent long-term earnings and revenues.

By TheStockAdvisors Aug 27, 2013 9:08AM

Oil drilling platform (© Scott Gibson/Corbis)By Charles Mizrahi, Hidden Values Alert


Atwood Oceanics (ATW) is a global offshore drilling contractor. We continue to like this stock because of strong demand for its services.


Oil exploration and drilling has increasingly looked offshore for a source of reserves in recent years. These companies rely on third party contractors to provide rigs for these deep-water environments.


High utilization rates have resulted in rig shortages, which created upward pressure on prices. Atwood's largest customers include Chevron (Australia), Noble, and Kosmos Energy Ghana.


ATW has benefited from increased lease rates as a result of the surge in demand. The company's utilization rate in 2012 was 100% with a 95% average over the last 10 years.


Its growth strategy over the next several years involves building new rigs to meet the growing demand for its services.


Meanwhile, the company has a long term focus. Management is content with sacrificing short-term cash flows to focus on the bigger picture.


The company has invested more than $2 billion in capital expenditures over the past five years to sustain its growing fleet of offshore drilling units.


The contracts for deep-water rigs are generally multiyear contracts, ranging from three-six years. This backlog locks in earnings and generates a consistent revenue stream. These recurring revenues allow the company to withstand the cyclical trends of the industry.


The company had record sales in 2012 of $787 million. ATW also posted record net income of $272 million. This represents a 34.5% profit margin.


With earnings locked in over the next few years in the form of multiyear contracts, similar results can be expected going forward.


More from TheStockAdvisors.com

Tags: ATWoil
0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125
125 rated 1
267
267 rated 2
455
455 rated 3
612
612 rated 4
682
682 rated 5
695
695 rated 6
632
632 rated 7
472
472 rated 8
279
279 rated 9
147
147 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
VZVERIZON COMMUNICATIONS9
TAT&T Inc9
CTLCENTURYLINK Inc8
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.