NEW YORK (TheStreet) -- Shares of Atwood Oceanics (ATW) are slumping 5.25% to $31.79 after Goldman Sachs downgraded the Houston-based company to "neutral" from "buy" and lowered the price target to $27 from $34.
Analysts cited a shift in their portfolio leverage further towards U.S. onshore.
"GS Research expects the marginal growth in global oil demand to be met by US Shale and OPEC production, and forecasts offshore project sanctioning to be challenged for a few years driving weak demand for offshore rigs," analysts wrote. "We expect [fundamentals in offshore drilling] to remain very weak in the coming years as additional supply is under-construction."
They added that the company also faces significant re-contracting risk in 2017, which is becoming hard to ignore.
While Atwood remains the "best-in-class" offshore driller, Goldman analysts believe 2017 to be a particularly painful year, according to Barron's.
Atwood Oceanics is an offshore drilling contractor that engages in the drilling and completion of exploratory and developmental oil wells worldwide.
TheStreet Ratings team rates ATWOOD OCEANICS as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate ATWOOD OCEANICS (ATW) 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, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 1.6%. Since the same quarter one year prior, revenues rose by 28.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The current debt-to-equity ratio, 0.59, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, ATW has a quick ratio of 1.93, which demonstrates the ability of the company to cover short-term liquidity needs.
- ATWOOD OCEANICS reported significant earnings per share improvement in the most recent quarter compared to 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, ATWOOD OCEANICS reported lower earnings of $5.24 versus $5.32 in the prior year. This year, the market expects an improvement in earnings ($7.26 versus $5.24).
- ATW's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 29.84%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- 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. In comparison to the other companies in the Energy Equipment & Services industry and the overall market, ATWOOD OCEANICS's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full analysis from the report here: ATW Ratings Report