Inside Wall Street: Underwater engineering services firm Oceaneering rides a wave of attention

Demand rises for the global oilfield-service company's expertise in deepwater products.

By Gene Marcial Feb 20, 2013 4:33PM

ocean waveWhether or not crude oil prices rise sharply or fall flat, demand for the services of

Oceaneering International (OII) by oil and gas producers has remained in an uptrend.

The Houston-based global provider of sub-sea engineering products and services to offshore oil and gas producers is one of the few energy companies that have consistently piled up yearly solid earnings growth in the past decade. That factor alone is a very positive fundamental that, some M&A pros say, make Oceaneering a possible takeover target.

Steady earnings growth is obviously a big deal in the oil industry, yet Oceaneering hasn’t ignited the excitement it deserves among investors. True, its stock has performed superbly, rising from a low of $5 a share in 2003 to its current price of $63 -- but that’s mainly due to buying by some large institutional investors who understand the company’s allure.


Michael Marino, an oil-service industry analyst at the investment bank Stephens Inc., makes a big point about Oceaneering’s sturdy profit prospects. While noting that Oceaneering has achieved many years of 20%-plus earnings growth, Marino says the stock is a “core holding type name, which we expect will continue to post annual earnings growth near 20% for the next several years as the later-cycle ‘subsea infrastructure’ phase” starts to drive further expansion.


While rating the stock as overweight, Marino has raised his price target to $75 a share from $65. He expects the rising earnings trend will help boost utilization and pricing, in addition to an expected rise in demand for the company’s sub-sea products and support services.


With the stock trading at 19.9 times his 2013 earnings estimate of $3.25 a share and 10 times earnings before interest, taxes, depreciation and amortization, he says Oceaneering's stock continues to command a premium multiple to the broader oil-service group -- because of its “strong position in a growing subsea market and a track record of earnings growth of 20% or more over the last decade.”


Marino’s price target of $75 translates to 23 times his 2013 earnings forecast, but it also has a 20% or more earnings growth potential beyond 2013. It’s a premium multiple that he believes is reasonable. Revenues for 2013 are expected to increase to $3.15 billion from 2012’s $2.78 billion.   

Part of Oceaneering’s attraction is its expertise in providing deep-water tools and services worldwide. Its Remotely Operated Vehicles unit provides submersible devices that are operated from the surface, to support offshore oil and gas exploration, production and construction activities. There is also growing demand for the company’s Sub-sea Products unit, which constructs built-to-order specialty sub-sea hardware such as underwater “umbilicals” -- which use thermoplastic hoses,steel tubes and other tools for underwater inspection, repair and maintenance activities.


Alan Laws, an analyst at BMO Capital Markets, also rates Oceaneering as outperform. He says the company’s consistent growth continues “onwards and upwards.” Its story “remains attractively differentiated,” he says, with a core centered on the growing base of deep-water floating rigs and, increasingly, the secular build-out of global sub-sea infrastructure.”


The company, he adds, continues to be supported by a steady supply of new-build rigs, adding to Oceaneering’s already impressive 75% market share.

“Net, net," says Laws, "Oceaneering remains our favorite mid-cap services name given its growth backdrop tailwinds, merger-and-appreciation appeal, and modest yi8ekld (likely increasing longer term.”

Gene Marcial wrote the column "Inside Wall Street" for Business Week for 28 years and now writes for MSN Money's Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.

More on Top Stocks



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.


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.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



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.