Shares of offshore driller Hercules Offshore, (NASDAQOTH: HERO ) fell around 4% early Wednesday morning after the company reported less than spectacular second quarter results.
Revenue for the quarter jumped 15% to $243 million, but income from continuing operations fell from $16.6 million to $6.6 million, or $0.04 per share. On a non-GAAP basis, the company lost $0.04 per share, $0.05 below estimates.
Domestic demand was down during the quarter and utilization rates were down significantly from a year ago as a result. But dayrates remained significantly higher than last year, which is why Hercules Offshore reported higher operating income in the quarter.
Like many companies in offshore drilling, Hercules management says that demand for rigs will pick up in the second half of the year. If that's true this will be a great buying opportunity because shares are trading at around 10 times full-year estimates. But we're not seeing that demand pick up yet so it may be wise to see what other companies have to say about second half demand before jumping in with both feet.
Remember, as a shallow water driller, Hercules often sees the good and the bad before others because it has shorter contracts, so if they're not seeing an uptick in demand it may not materialize as quickly as expected.
Pipelines may be a better bet
Drilling demand can ebb and flow but production in the U.S. keeps rising and that oil & gas has to be piped around the country, creating an opportunity for investors. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.