Noble Corporation (NYSE:NE)10/18/2010 October 14, 2010 Current Price – US$35.90 Noble Corporation (NE) is the world’s second largest publically traded provider of diversified services for the oil and gas industry with annual revenues of $3.6B. The Company performs contract drilling services with its fleet of 62 mobile offshore drilling units located in key markets worldwide. So far the company has managed to execute admirably on its long-standing business strategy to actively expand international and offshore deepwater capabilities through acquisitions, rig upgrades and modifications, and to redeploy assets in important geological areas. In doing so it has developed superior margins and returns to equity (Op. Mar. 55%, ROE 22%), and a rock solid balance sheet churning out prodigious amounts of free cash flow ($1.4B FCF on $3.6B Rev.) while continuing to invest in growth of its capital equipment base and returning value to shareholders through share repurchases and growing dividend payments. The full value of the company’s shares do not appear to be recognized in the current market, however, a correction to prices seems likely as recessionary conditions improve and supply/demand dynamics return to a pre-recession state. Valuation Based on a blend of valuation methods (discounted cash flows, dividend discount model and, historical and industry price ratios) I arrive at a current valuation for Noble Corporation of US$49.82. Expected return should this price be realized in the markets within the next 12 months would be: Price yield 38.8% Dividend yield 0.5% Total return 39.3% Risks Listed below are some of the key risks faced by the company. For a more complete discussion of risk, refer to the company’s annual report and 10K filing. Global Economic Conditions - This business depends on the level of activity in the oil and gas industry, which is significantly affected by volatile oil and gas prices. Recent worldwide instability in the financial and credit sectors and economic recession could have a material adverse effect on the company’s financial position, results of operations and cash flows. Competitive Landscape – A combination of recent recessionary conditions, reduced oil prices and high historical economic profit within the industry suggest increased likelihood of industry consolidation and the potential for build-out of excess capacity and increased vertical integration by oil producers. The extent and impact of these developments is unpredictable and may have a negative impact on revenues and margins. Regulation - Governmental laws and regulations, including environmental laws and regulations, may add to costs or limit drilling activity. The Numbers Share Price ($US) 35.65 Market Cap ($US B) 9.1 No. Shares (M) 257 ROE 21.9% ROA 17.6% P/E Ratio 6.3 Price/Sales Ratio 2.7 Price/Book Ratio 1.3 Current Ratio 3.9 Interest Coverage 1200 Total Debt/Equity 10.0% Analyst – David Scollon Disclosure - At publication of this analysis I hold no position in this security, but may take a long position in the future. I do not take short positions in any of the stocks reviewed on this site, nor do I receive any compensation from the companies studied for publication of my opinions. Copyright © 2010 Scollon Asset Analytics Ltd. All rights reserved. Unauthorized distribution or reproduction is strictly forbidden. Scollon Asset Analytics Ltd. obtains information from various sources felt to be reliable but does not warrant its accuracy and disclaims for itself all liability arising from its use. No information provided shall constitute tax, legal, or investment advice, or an offer to buy or sell securities. Western Digital Corporation (NYSE:WDC)10/06/2010 October 7, 2010 Current Price – US$28.78 Admittedly, I make the call on Western Digital Corporation (WDC) with some degree of trepidation. The company produces hard drives and solid state drives for manufacturers of computers, storage systems and consumer products, as well as, external hard drives for retail distribution. This means that it operates in a highly competitive industry that is subject to disruptive technological changes from both its competitors and its customers, and has high cyclical volatility. However, WDC does hold a very strong position with respect to market share (approximately 30% of market with revenues of $9.8B), brand name and reputation and is trading at an attractive valuation relative to historical multiples and projected earnings. Further, while the company does not presently pay a dividend, it has been generating large amounts of free cash flow ($1.2B in 2010) that will need to be put to productive use or returned to shareholders. This suggests the possibility of either a repurchase of shares or declaration of a special dividend at some point in the near future. While the fundamental drivers behind growth in demand for storage products (increased video storage, mobility, and emerging markets growth) remain strong, it remains an open question and concern as to if/when solid state storage devices catch up to WAG’s hard drives in terms of cost and capacity, and whether the company will be able to main its competitive advantages in transitioning to new technologies. Again, while this company appears to be attractively priced, have a very strong balance sheet and strong fundamental drivers for growth, it comes with a degree of market/technological uncertainty and cyclical volatility that may discourage less intrepid investors. Valuation Based on a blend of valuation methods (discounted cash flows, dividend discount model and, historical and industry price ratios) I arrive at a current valuation for Western Digital Corporation of US$39.78. Expected return should this price be realized in the markets within the next 12 months would be: Price yield 38.9% Dividend yield ----% Total return 38.9% Risks Listed below are some of the key risks faced by the company. For a more complete discussion of risk, refer to the company’s annual report and 10K filing. Customer Concentration and Consolidation – 53% of revenues are derived from 10 customers. Loss of a key customer, or consolidation among the customer base, could negatively impact operating results. Global Economic Conditions – A prolonged economic downturn could result in a decrease in revenues and an increase in operating costs adversely affecting operating results. Markets and Technical Expansion - Entry into additional storage markets and products is complex and, if WAG is unable to successfully adapt, may lead to an erosion of competitive advantages and earnings. Technological Innovation - Current or future competitors may gain a technology advantage or develop an advantageous cost structure that WAG cannot match. Operational Concentration - Manufacturing operations are concentrated in a small number of large facilities subjecting the company to substantial risk of damage or loss if operations at any of these facilities are disrupted. The Numbers Share Price ($US) 28.78 Market Cap ($US B) 6.5 No. Shares (M) 233 ROE 35.0% ROA 21.9% P/E Ratio 4.7 Price/Sales Ratio 0.7 Price/Book Ratio 1.4 Current Ratio 2.3 Interest Coverage 169 Total Debt/Equity 8.5% Analyst – David Scollon Disclosure - At publication of this analysis I hold no position in this security, but may take a long position in the future. I do not take short positions in any of the stocks reviewed on this site, nor do I receive any compensation from the companies studied for publication of my opinions. Copyright © 2010 Scollon Asset Analytics Ltd. All rights reserved. Unauthorized distribution or reproduction is strictly forbidden. Scollon Asset Analytics Ltd. obtains information from various sources felt to be reliable but does not warrant its accuracy and disclaims for itself all liability arising from its use. No information provided shall constitute tax, legal, or investment advice, or an offer to buy or sell securities. Tidewater Inc. (NYSE:TDW)10/02/2010 October 2, 2010 Current Price – US$43.97 Tidewater (TDW) impresses with its conservative approach to financial and growth management, its scale and geographic diversification, and a demonstrated commitment to return value to shareholders through distribution of free cash flow through dividends or share repurchases. The company has a stated strategy to maintain a solid balance sheet, utilize cash flow to renew its fleet, return surplus capital to shareholders and remain ready to capitalize on business expansion opportunities if the price, quality of assets and timing are right. Capital expenditures from operating cash flows at rates exceeding depreciation, maintenance of low debt levels, and ongoing payments of dividends and share repurchases validate the company’s commitment to this strategy. The primary drivers for revenues for TDW are expected future levels of supply and demand for crude oil and natural gas, and on estimates of the cost to find, develop and produce reserves. This in turn drives oil and gas exploration and development activities and the demand for support services such as those provided by Tidewater. While global recessionary conditions have throttled back demand and depressed prices, TDW earnings have remained relatively flat. However, the fundamental drivers, increased energy demand coupled with dwindling supply, suggest that demand for the company’s services will rebound strongly and that share price should recover. Tidewater runs the world’s largest offshore support vessel fleet with 394 vessels distributed globally. The company has annual revenues of $1.2B, with 90% of its revenue derived from international deployments and 10% from U.S. operations. The primary business is the provision of marine support services to oil and gas exploration, development and production companies, drilling companies, and other offshore services companies. Valuation Based on a blend of valuation methods (discounted cash flows, dividend discount model and, historical and industry price ratios) I arrive at a current valuation for Tidewater Inc. of US$54.50. Expected return should this price be realized in the markets within the next 12 months would be: Price yield 24.0% Dividend yield 2.3% Total return 26.3% Risks Listed below are some of the key risks faced by the company. For a more complete discussion of risk, refer to the company’s annual report and 10K filing. Global Economic Conditions – As the primary driver for earnings is global demand for oil and gas, prolonged recessionary conditions and subdued demand may adversely impact earnings. Competitive Pressures – The marine support services industry is highly competitive and competes largely on price. Continued addition of new capacity might adversely impact future earnings. Industry Consolidation and Concentration – consolidation within the company’s customer base may lead to reduction in aggregate demand for marine support services and reduce pricing power. Currently, 31% of the company’s revenues are derived from just two customers. Loss of these customers would materially impact earnings. The Numbers Share Price ($US) 43.97 Market Cap ($US B) 2.3 No. Shares (M) 52 ROE 10.7% ROA 7.8% P/E Ratio 9.1 Price/Sales Ratio 2.1 Price/Book Ratio 0.9 Current Ratio 2.4 Interest Coverage 45 Total Debt/Equity 12% Analyst – David Scollon Disclosure - At publication of this analysis I hold no position in this security, but may take a long position in the future. I do not take short positions in any of the stocks reviewed on this site, nor do I receive any compensation from the companies studied for publication of my opinions. Copyright © 2010 Scollon Asset Analytics Ltd. All rights reserved. Unauthorized distribution or reproduction is strictly forbidden. Scollon Asset Analytics Ltd. obtains information from various sources felt to be reliable but does not warrant its accuracy and disclaims for itself all liability arising from its use. No information provided shall constitute tax, legal, or investment advice, or an offer to buy or sell securities. | Company reviews on Weekly Stock Call are available free of charge, however, the enterprise does incur costs in providing this value. If our reviews have helped you to improve the returns on your portfolio, and you would like to contribute a fraction of the extra returns realized to the ongoing publication of Weekly Stock Call, please click the "Contribute" button below.
Your support is greatly appreciated. David Scollon, President, Scollon Asset Analytics Ltd. MonthMay 2012 CompaniesAll Copyright © 2010 Scollon Asset Analytics Ltd. All rights reserved. Unauthorized distribution or reproduction is strictly forbidden. Scollon Asset Analytics Ltd. obtains information from various sources felt to be reliable but does not warrant its accuracy and disclaims for itself all liability arising from its use. No information provided shall constitute tax, legal, or investment advice, or an offer to buy or sell securities. |
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