The bank cut its rating for Hercules Offshore to "sell" from "neutral," cutting its price target to $3.60 from $4.60.
"We also cut our 2014/15 EBITDA by 25%/13%," analyst Waqar Syed wrote. "After the close on June 19, HERO announced contract cancellation for 2 jack-ups putting at risk ~$300mn of revenues modeled for the next 3 years. While the stock's 11.7% fall on June 20 somewhat reflects this news, it doesn't fully incorporate weakening near-to-medium term fundamentals. Moreover, revised consensus estimates are still too high, in our view. HERO's GOM based jack-up fleet faces utilization challenges owing to hurricane season, customer consolidation and likely influx of rigs from Mexico."
Separately, TheStreet Ratings team rates HERCULES OFFSHORE INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate HERCULES OFFSHORE INC (HERO) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 11.2%. Since the same quarter one year prior, revenues rose by 37.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- 45.18% is the gross profit margin for HERCULES OFFSHORE INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 7.75% trails the industry average.
- HERCULES OFFSHORE INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HERCULES OFFSHORE INC continued to lose money by earning -$0.17 versus -$0.79 in the prior year. This year, the market expects an improvement in earnings ($0.54 versus -$0.17).
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Energy Equipment & Services industry and the overall market, HERCULES OFFSHORE INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Energy Equipment & Services industry. The net income has significantly decreased by 43.4% when compared to the same quarter one year ago, falling from $35.16 million to $19.92 million.
- You can view the full analysis from the report here: HERO Ratings Report