RBC Capital Markets analysts said the Houston, TX-based offshore drilling company was operating in a challenging market.
"We expect the market to stay weak into 2017 which is likely to put continued pressure on dayrates and utilization, leaving the company with a materially lower earnings stream," the analysts added.
Atwood Oceanics only has one of its 13 rigs contracted through 2017, according to RBC Capital Markets.
"Finding work for the remaining twelve rigs over the next two years could be a very competitive process that will likely lead to some gaps in between contracts," the analysts said. "The biggest risk to ATW shares is rigs rolling off contracts without new deals."
Though it once traded at a premium, Atwood Oceanic's fleets are becoming more homogenous as older assets are retired, making them "less of a standout in today's market," the analysts said.
Shares of Atwood Oceanics closed up 5.67% to $18.09 today.
Separately, 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 revenue growth, largely solid financial position with reasonable debt levels by most measures and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 29.5%. Since the same quarter one year prior, revenues rose by 12.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.61, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, ATW has a quick ratio of 2.24, which demonstrates the ability of the company to cover short-term liquidity needs.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Energy Equipment & Services industry and the overall market on the basis of return on equity, ATWOOD OCEANICS has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- 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 54.85%, 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.
- Net operating cash flow has decreased to $133.86 million or 22.51% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, ATWOOD OCEANICS has marginally lower results.
- You can view the full analysis from the report here: ATW