Hornbeck Offshore: Maintaining position in a 'totally misbehaving' stock

Posted Dec 2nd 2009 4:15PM by Joseph Lazzaro
Filed under: Stocks to Buy

Hornbeck Offshore Services' (HOS) stock has 'totally misbehaved' since the May 28, 2009 buy call at a price of $27.08, but I'm nevertheless reiterating the recommendation. Here's why:

The bullish trend in the oil sector should keep Hornbeck's growth story intact, even though day rates for 2009 offshore supply vessels will likely be 15-20% below 2008; in 2010, offshore rates should improve slightly. Meanwhile, capacity utilization should improve in 2010 from the current roughly 80% rate.

The First Call FY2009/FY2010 EPS estimates for HOS are $2.49 to $2.65. That $2.65 FY2010 EPS estimate will likely prove to be low.

Technically, Hornbeck's stock chart is problematic: the stock formed a double-top at $31 - a bearish formation - and has since broken below the key, 50-day moving average, losing about $9 in the process. If the stock was in almost any other sector, the position would have been closed: but this is oil/natural gas services, a promising sector, hence the position will be maintained.

Stock Analysis: Hornbeck Offshore Services is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in HOS now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your HOS position before February 2010. Sell/Stop Loss if you were to buy shares in this company: $12.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: hornbeck offshore, HornbeckOffshore, offshore, oil, oil services, OilServices