Oceaneering earns its living in far-flung places

Posted Nov 27th 2007 7:58PM by Joseph Lazzaro
Filed under: Middle East, Mexico, Canada, Commodities, Oil, Stocks to Buy

It goes without saying that every defensive stock category is being tested in this market.

Moreover, while no sector is 100% bullet-proof from a market that seems to look for an excuse to decline another 200 points, the oil and oil services sector has fared reasonably well, and in this category Oceaneering International (NYSE: OII) is worth a review.

Oceaneering is an advanced technology company servicing the oil and gas industry, among others. It focuses on providing underwater drilling support, construction, inspection and repair services to oil/gas companies.

As one might estimate, OII's fortunes are tied to the strength of oil/natural gas prices and with prices at near-record levels, OII's business is strong and likely to remain so: most analysts see a long, strong, global deepwater oil services cycle.

Look for Oceaneering's EPS to move substantially higher for at least 2-3 years on strong, secular deepwater demand. Utilization rates should improve, as should dayrates, and fleet additions. The Reuters F2007/F2008 EPS consensus estimates for OII are $3.19 to $3.70.

The risks? Analysts have their eye on operating costs and component expenses. Further, a substantial, sustained decline in oil prices would hurt OII future orders, and by extension, the stock's price. Also, Oceaneering's p/e of 22 is above-average, hence there's a risk of a further pull-back in OII's shares.

But if you can tolerate moderate risk and you're looking for a way to profit every time your local gasoline station changes its gasoline price to a higher number, consider Oceaneering.

The First Call mean rating for OII is: Buy. [9 firms.] Mean 2008 target: $79.40. [high: $91, low: $65.]

Stock Analysis: Oceaneering International is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 1 year should be rewarded from OII's shares. Sell / Stop Loss if you were to purchase shares in this company: $42.

Tags: emerging markets, energy, natural gas, natural gas services, OceaneeringInternational, OII, oil, oil prices, oil production, oil services