Why Hercules Offshore, Inc. Shares Could Slump 15%

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Hercules Offshore, (NASDAQ: HERO  ) slipped about 3% today after Goldman Sachs downgraded the shallow-water driller from neutral to sell.

So what: Along with the downgrade, analyst Waqar Syed lowered his price target to $3.60 (from $4.60), representing about 17% worth of downside to Friday's close. So while contrarian traders might be attracted to Hercules' big drop on Friday, Freedman's call could reflect a sense on Wall Street that its operating challenges are just too difficult to allow for a significant turnaround.

Now what: Goldman cut its 2014 and 2015 EBITDA outlook for Hercules by 25% and 13%, respectively. "After the close on June 19, HERO announced contract cancellation for 2 jack-ups putting at risk ~$300mn of revenues modeled for the next 3 years," noted Syed. "While the stock's 11.7% fall on June 20 somewhat reflects this news, it doesn't fully incorporate weakening near-to-medium term fundamentals. Moreover, revised consensus estimates are still too high, in our view. HERO's GOM based jack-up fleet faces utilization challenges owing to hurricane season, customer consolidation and likely influx of rigs from Mexico." Given Goldman's solid track-record of call-making -- currently ranked in the top 10% of our CAPS community with an accuracy of 75% -- Hercules bulls might want to take a closer look at those risks. 

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  • Report this Comment On June 24, 2014, at 8:27 AM, sheepspen wrote:

    Goldman is notorious for making calls like this while then taking the opposite side of the trade. Its Wall Street at its finest. HERO recently rose .12 on a newly announced 420m long tern contract that included a new rig. While falling nearly 20% on a 90m short term contract that on there own accord chose to pull over nominal issue. They would not have pulled this contract on such a minor issue unless they had another lined up in the works. What then happens to the stock price when HERO announces the contract has been refilled? And lastly the hurricane season is an annual event that effects ever driller in the GOM equally, so tell me why didn't they just downgrade the entire sector? Use your head folks. Look at the numbers, look at there earnings, do your own research and read the last earnings transcript. They tell the real story. These are bargain basement prices that are driven down by false information from sources notorious for this kind of garbage while they make huge $ on the opposite side of the trade. Do your own research and take advantage of these prices. Be patient, be steady and give this stock the proper time frame to show the real story.

  • Report this Comment On June 24, 2014, at 2:20 PM, sheepspen wrote:

    Here is more confirmation, CEO John Rynd of HERO just bought 36,000 shares at $4.01 today 6/24/14.

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