This Just In: Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
Drill, baby, drill! You don't hear this chant emanating from the oil & gas crowd quite as often lately. Seems BP's (NYSE: BP  ) "Deepwater Disaster" has muffled the enthusiasm for deep sea oil exploration. And yet, just yesterday we heard the guttural tones carrying across the sea:

"Drill, liebchen, drill!"

Yes, Fools: on Tuesday, the Teutonic stock technicians at Deutsche Bank declared that -- Deepwater notwithstanding -- the future of energy remains below the waves. "We see little long-term reduction in the industry's appetite for deepwater exploration and development in the wake of the Deepwater Horizon incident and OII could even stand to benefit from enhanced safety and environmental regulations."

OII?
Yes, "OII." Oceaneering International (NYSE: OII  ) . Yesterday I set up a bit of a point, counterpoint arguing that one of the Fool's own favored stock picks, Motley Fool Rule Breakers recommendation iRobot (Nasdaq: IRBT  ) , could do a lot of stuff that OII cannot, inasmuch as its Seaglider underwater robots operate without a tether, and can range throughout the sea, sniffing out oil spills whersoe'er they flow. But "different" isn't quite the same thing as "worse," and OII can do a few tricks that iRobot cannot.

On the robotics front, OII's underwater robots may need to operate "with a net" (actually, a tether to a surface mother-ship). But they can operate a whole lot deeper than Seaglider, and pack equipment that Seaglider does not. And that's just the start of the OII story. This company also offers multiservice vessels, oilfield diving, and support vessel operations. It builds-to-order specialty subsea hardware for deepwater operators like Transocean (NYSE: RIG  ) , BP, and Petrobras (NYSE: PBR  ) . And OII offers a host of other products and services facilitating the drilling for oil-at-depth. In short, as Deutsche avers: "OII is the rare small cap that has significant exposure to a strong secular growth story (in this case deepwater), leading market positions and barriers to entry."

Buy the numbers
Oceaneering International is also -- dare I say it? -- cheap. Selling for 16.5 times trailing earnings, the company compares favorably to the 18x multiple on offer at big tie competitor Global Industries (Nasdaq: GLBL  ) . Stacked up against currently unprofitable (and debt-laden) Superior Energy Services (NYSE: SPN  ) , OII looks even better.

And as if all that weren't enough already to recommend the stock ... OII is arguably even cheaper than it looks. Reviewing the firm's cash flow statement, we find that in contrast to GAAP accounting standards, which have the company pegged for only $183 million in trailing profit, the company has in fact generated nearly $260 million worth of free cash flow over the past 12 months -- giving it a temptingly low-looking price-to-free cash flow ratio of just 11.5. (And did I mention that Oceaneering International carries no net debt, and actually has $100 million in net cash?

Foolish takeaway
With a leading market position in its business, a rock-solid balance sheet, and an attractive stock price to boot, Oceaneering International seems worth of the buy rating Deutsche has assigned it. Now, would I prefer to see more analysts projecting faster profits growth for the company (the consensus has 'em pegged for about 9.4% growth over the long term)? Sure I would. But if Deutsche's right in taking its contrarian stance this week, and deepwater production prospects are stronger than everyone else seems to think...

... well, just might turn out that Oceaneering International is an even deeper value play than it looks on the surface.