Why Hercules Offshore (HERO) Sank Today

NEW YORK (TheStreet) -- Oil and gas driller Hercules Offshore (HERO) shares suffered double-digit percentage losses on Thursday, dropped 14.1% to $4.94. By mid-morning, 5 million shares had changed hands, well over its three-month average daily trading volume of 2.7 million.

An analyst report from Global Hunter Securities on Thursday sparked the small-cap's sell-off after the company released its January Fleet Status Report (FSR) a day earlier. The analyst firm downgraded the stock to "neutral" from "buy" and halved its price target to $6 from $12.

"Going into this FSR, we wanted to see: 1) meaningful contracts for the Discovery rigs; 2) a tick higher in GOM dayrates; and 3) PEMEX recontracting several of the legacy jackups set to roll in 2014, indicating to the market that its newbuild awards are not solely replacement rigs but rather incremental," wrote analyst Brian Uhlmer in the report.

"Failure to see any of these as well as the lack of contracts for the Resilience and 203 hurts our confidence in this name and as a result we are downgrading the name," he concluded.

TheStreet Ratings team rates HERCULES OFFSHORE INC as a Hold with a ratings score of C+. The 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, compelling growth in net income and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and generally higher debt management risk."

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