On Wednesday, Citi maintained its Buy rating on Oceaneering International (NYSE:OII) stock and raised the shares target to $28 from $25. The firm's updated outlook comes after a review of recent market trends and financial forecasts for the company.
The revised price target reflects a positive view on the company's earnings potential, especially in its Subsea Robotics (SSR) and Manufactured Products divisions. The analyst from Citi adjusted the second quarter 2024 EBITDA forecast for Oceaneering International to $87 million, which is higher than the consensus estimate of $84 million.
The full-year 2024 EBITDA prediction was also increased to $350 million from the market consensus of $333 million. This optimistic outlook is based on expectations of slightly higher revenues and improved SSR margins.
In the SSR segment, there is a strong pricing momentum for remotely operated vehicles (ROVs), with day rates anticipated to rise to approximately $11,000 per day by the fourth quarter of 2024.
Despite this, the firm has a more conservative stance on the full-year 2024 utilization rates due to a stagnant offshore rig count and a lack of new contract announcements, estimating a 67% utilization for the year.
The Manufactured Products division is expected to achieve its full-year 2024 book-to-bill ratio target of 1.1-1.3, supported by robust energy orders. However, robotics orders are considered to be more sporadic.
Additionally, Citi has slightly reduced its EBITDA forecast for fiscal year 2025 by 3% to $422 million, which is still above the consensus estimate of $390 million, due to lower margins in the Offshore Projects Group (OPG).
The overall assessment by Citi leads to the continuation of a Buy rating for Oceaneering International, with the firm's confidence in the company's performance underscored by the increased price target. This adjustment indicates a favorable outlook for Oceaneering International's revenue and margin growth in the coming years.
In other recent news, Oceaneering International has seen a downgrade in its stock rating from Barclays, moving from an Equalweight to an Underweight rating. This change comes alongside a revised price target, now set at $21, down from $22. Barclays' decision stems from concerns regarding Oceaneering International's growth prospects and its ability to generate free cash flow.
The company's guidance for mid-single-digit growth this year is attributed to the defensive nature of its portfolio. Barclays anticipates this may limit the company's ability to significantly benefit from expected increases in offshore upstream spending in the coming years.
Oceaneering's Energy segments, which contribute approximately 80% of its revenue, generally have low growth profiles, with the exception of the remotely operated vehicles (ROVs) business.
Despite pricing improvements in the ROVs business, Barclays cites a lack of clear earnings visibility and the absence of medium-term targets as potential obstacles to the company's future free cash flow generation.
These recent developments reflect a less favorable view of Oceaneering International's stock performance potential from Barclays. The new $21 price target is based on 6.0 times the firm's 2025 EBITDA estimate, a multiple that remains unchanged.
InvestingPro Insights
Following Citi's optimistic outlook on Oceaneering International's earnings potential, InvestingPro data and tips offer additional insights. Oceaneering International is currently trading at a P/E ratio of 21.93, which is considered low relative to its near-term earnings growth, suggesting that the stock could be undervalued. Moreover, the company's revenue has seen a healthy growth of 15.29% over the last twelve months as of Q1 2024, aligning with the positive revenue expectations from Citi.
InvestingPro Tips indicate that analysts have revised their earnings upwards for the upcoming period, reinforcing the positive sentiment from Citi's analysis. Additionally, the company's liquid assets surpass short-term obligations, which provides financial stability and flexibility. However, it's important to note that Oceaneering International does not pay a dividend, which could be a consideration for income-focused investors.
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