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Oceaneering (OII) Offers a Winning Formula in Energy Space
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Oceaneering International (OII - Free Report) — one of the leading suppliers of offshore equipment and technology solutions to the energy industry — offers an opportunity for investors interested in the energy sector. The company also has strong fundamentals to back up its future performance.
Headquartered in Houston, TX, the company provides specialized products and services for all phases of the offshore oilfield lifecycle — from exploration to decommissioning — with a focus on deep water. The company operates in five business segments, namely Subsea Robotics, Manufactured Products, Offshore Projects Group, Integrity Management & Digital Solutions and Aerospace and Defense Technologies.
Let’s discuss the reasons that make Oceaneering International an attractive pick:
Macro Tailwinds
Even as fears related to high inflation and slowing growth somewhat cloud the outlook for Oil/Energy, it has remained the best S&P 500 sector over the past year. The space has generated a total return of around 12.1% in the trailing 12 months compared with the S&P 500’s decline of 6.9%.
Apart from a relatively constructive fundamental picture, the sector is enjoying support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March 2022, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity.
Agreed, oil has pulled back from those lofty levels, However, the commodity still has enough reasons to stay elevated in the near-to-medium term, with the conflict showing no signs of a quick resolution, the risk of dwindling inventory, and the influential oil exporters’ group OPEC sticking to a conservative production profile. While the banking sector turmoil did affect the sector temporarily, the crisis seems to have eased now. Crude also got a leg up and is now trading above $80 after U.S. Federal Reserve signaled an imminent end to interest rate increases.
Solid Rank and VGM Score
Oceaneering is a Zacks Rank #2 (Buy) stock. In addition to the favorable rank, OII enjoys a Value and Gowth Style Score of A each to help it round out with a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Buying Opportunity Still Exists
After OII shares bottomed out (around $2) during the start of the pandemic, they have turned around in style. Oceaneering International peaked in March and has held up reasonably well even as most energy scrips faced significant downward momentum. In fact, Oceaneering International is up 18.3% in a year while the markets have gone lower. This powerful uptrend during a down market indicates that investors should start looking at the name to see if its right for their portfolio. With the company still experiencing good market conditions, we believe that OII stock has enough firepower left to keep chugging along.
Image Source: Zacks Investment Research
Analyst Estimates Raised
OII’s earnings revisions have also trended in the right direction over the last 90 days, as analysts have taken up their numbers. As a matter of fact, the Zacks Consensus Estimate for Oceaneering’s 2023 bottom line has gone up from a profit of 86 cents to a profit of 89 cents during this timeframe, while next year’s number suggests a rise from a profit of $1.02 per share to $1.15.
Fundamental Strength
One of the leading suppliers of integrated technology solutions, Oceaneering boasts an impressive portfolio of diversified products and services. It is well positioned to supply equipment for the deep-water projects and is active at all phases of the offshore oilfield lifecycle. Oceaneering owns a geographically diversified asset base spread across the United States and the rest of the world. The company's revenue profile is evenly split between its international and domestic operations, lowering Oceaneering’s risk profile.
In particular, Oceaneering’s key ‘Subsea Robotics’ unit, which provides cutting-edge technology solutions for remote working through its Remotely Operated Vehicles (ROVs) and Autonomous Underwater Vehicles (AUVs), is expected to drive the company forward. The unit accounts for some 30% of revenues and more than half of the adjusted operating EBITDA. Oceaneering expects increased ROV days on hire, higher tooling activity, and continued pricing improvements this year as the primary catalysts for improved performance.
Finally, OII's strong relationships with high-quality customers provide revenue visibility and business certainty. The clients, mostly well-capitalized, blue-chip E&P companies with long-term production growth plans, are likely to be less susceptible to commodity price fluctuations. This should ensure multi-year earnings stability for Oceaneering.
Reasonable Valuation
The valuation for this name isn’t low, but there is solid growth. OII has a forward P/E of 19.25, well above the industry average of 11.80. However, investors should know that the company is coming off a quarter that saw top-line growth of nearly 15%. Moreover, although expensive, the value is significantly below the 52-week high of 52.13. OII’s P/S of 0.76 is also lower than the industry’s 1.06.
Bottom Line
Against this backdrop, it should be prudent to consider buying shares of Oceaneering International. While there are some apprehensions that the company may have gotten too far ahead of itself, especially with the prevailing inflationary pressures, the supportive demand/supply fundamentals for its services and robust commodity prices should keep backlog and sales elevated going forward. This suggests strong long-term cash flows that should support higher price points for its shares.
Other Energy Stocks to Buy
Along with Oceaneering International, investors interested in the energy sector might look at NOW Inc. (DNOW - Free Report) , Par Pacific Holdings (PARR - Free Report) and Sunoco LP (SUN - Free Report) . Each of the companies has a Zacks Rank #1 (Strong Buy).
NOW Inc.: DNOW beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. NOW Inc. has a trailing four-quarter earnings surprise of 41.3%, on average.
DNOW is valued at around $1.2 billion. NOW Inc. has seen its shares edge up 1.4% in a year.
Sunoco LP: SUN beat the Zacks Consensus Estimate for earnings twice in the trailing four quarters. Sunoco has a trailing four-quarter earnings surprise of 21.6%, on average.
Sunoco is valued at around $4.4 billion. SUN has seen its shares gain 7.7% in a year.
Par Pacific Holdings: Par Pacific beat the Zacks Consensus Estimate for earnings in three of the last four quarters. PARR has a trailing four-quarter earnings surprise of roughly 16.1%, on average.
Par Pacific is valued at around $1.7 billion. PARR has seen its shares surge 100.6% in a year.
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Oceaneering (OII) Offers a Winning Formula in Energy Space
Oceaneering International (OII - Free Report) — one of the leading suppliers of offshore equipment and technology solutions to the energy industry — offers an opportunity for investors interested in the energy sector. The company also has strong fundamentals to back up its future performance.
Headquartered in Houston, TX, the company provides specialized products and services for all phases of the offshore oilfield lifecycle — from exploration to decommissioning — with a focus on deep water. The company operates in five business segments, namely Subsea Robotics, Manufactured Products, Offshore Projects Group, Integrity Management & Digital Solutions and Aerospace and Defense Technologies.
Let’s discuss the reasons that make Oceaneering International an attractive pick:
Macro Tailwinds
Even as fears related to high inflation and slowing growth somewhat cloud the outlook for Oil/Energy, it has remained the best S&P 500 sector over the past year. The space has generated a total return of around 12.1% in the trailing 12 months compared with the S&P 500’s decline of 6.9%.
Apart from a relatively constructive fundamental picture, the sector is enjoying support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March 2022, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity.
Agreed, oil has pulled back from those lofty levels, However, the commodity still has enough reasons to stay elevated in the near-to-medium term, with the conflict showing no signs of a quick resolution, the risk of dwindling inventory, and the influential oil exporters’ group OPEC sticking to a conservative production profile. While the banking sector turmoil did affect the sector temporarily, the crisis seems to have eased now. Crude also got a leg up and is now trading above $80 after U.S. Federal Reserve signaled an imminent end to interest rate increases.
Solid Rank and VGM Score
Oceaneering is a Zacks Rank #2 (Buy) stock. In addition to the favorable rank, OII enjoys a Value and Gowth Style Score of A each to help it round out with a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Buying Opportunity Still Exists
After OII shares bottomed out (around $2) during the start of the pandemic, they have turned around in style. Oceaneering International peaked in March and has held up reasonably well even as most energy scrips faced significant downward momentum. In fact, Oceaneering International is up 18.3% in a year while the markets have gone lower. This powerful uptrend during a down market indicates that investors should start looking at the name to see if its right for their portfolio. With the company still experiencing good market conditions, we believe that OII stock has enough firepower left to keep chugging along.
Image Source: Zacks Investment Research
Analyst Estimates Raised
OII’s earnings revisions have also trended in the right direction over the last 90 days, as analysts have taken up their numbers. As a matter of fact, the Zacks Consensus Estimate for Oceaneering’s 2023 bottom line has gone up from a profit of 86 cents to a profit of 89 cents during this timeframe, while next year’s number suggests a rise from a profit of $1.02 per share to $1.15.
Fundamental Strength
One of the leading suppliers of integrated technology solutions, Oceaneering boasts an impressive portfolio of diversified products and services. It is well positioned to supply equipment for the deep-water projects and is active at all phases of the offshore oilfield lifecycle. Oceaneering owns a geographically diversified asset base spread across the United States and the rest of the world. The company's revenue profile is evenly split between its international and domestic operations, lowering Oceaneering’s risk profile.
In particular, Oceaneering’s key ‘Subsea Robotics’ unit, which provides cutting-edge technology solutions for remote working through its Remotely Operated Vehicles (ROVs) and Autonomous Underwater Vehicles (AUVs), is expected to drive the company forward. The unit accounts for some 30% of revenues and more than half of the adjusted operating EBITDA. Oceaneering expects increased ROV days on hire, higher tooling activity, and continued pricing improvements this year as the primary catalysts for improved performance.
Finally, OII's strong relationships with high-quality customers provide revenue visibility and business certainty. The clients, mostly well-capitalized, blue-chip E&P companies with long-term production growth plans, are likely to be less susceptible to commodity price fluctuations. This should ensure multi-year earnings stability for Oceaneering.
Reasonable Valuation
The valuation for this name isn’t low, but there is solid growth. OII has a forward P/E of 19.25, well above the industry average of 11.80. However, investors should know that the company is coming off a quarter that saw top-line growth of nearly 15%. Moreover, although expensive, the value is significantly below the 52-week high of 52.13. OII’s P/S of 0.76 is also lower than the industry’s 1.06.
Bottom Line
Against this backdrop, it should be prudent to consider buying shares of Oceaneering International. While there are some apprehensions that the company may have gotten too far ahead of itself, especially with the prevailing inflationary pressures, the supportive demand/supply fundamentals for its services and robust commodity prices should keep backlog and sales elevated going forward. This suggests strong long-term cash flows that should support higher price points for its shares.
Other Energy Stocks to Buy
Along with Oceaneering International, investors interested in the energy sector might look at NOW Inc. (DNOW - Free Report) , Par Pacific Holdings (PARR - Free Report) and Sunoco LP (SUN - Free Report) . Each of the companies has a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
NOW Inc.: DNOW beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. NOW Inc. has a trailing four-quarter earnings surprise of 41.3%, on average.
DNOW is valued at around $1.2 billion. NOW Inc. has seen its shares edge up 1.4% in a year.
Sunoco LP: SUN beat the Zacks Consensus Estimate for earnings twice in the trailing four quarters. Sunoco has a trailing four-quarter earnings surprise of 21.6%, on average.
Sunoco is valued at around $4.4 billion. SUN has seen its shares gain 7.7% in a year.
Par Pacific Holdings: Par Pacific beat the Zacks Consensus Estimate for earnings in three of the last four quarters. PARR has a trailing four-quarter earnings surprise of roughly 16.1%, on average.
Par Pacific is valued at around $1.7 billion. PARR has seen its shares surge 100.6% in a year.