Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Oceaneering International Soared Nearly 40% in February

By Lee Samaha - Updated Mar 3, 2021 at 10:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There's been a sentiment change recently regarding stocks with oil and gas exposure.

What happened

Shares in subsea robotics company Oceaneering International (OII 5.92%) rose a remarkable 39.6% in February, according to data from S&P Global Market Intelligence. The larger part of the move came after a well-received set of fourth-quarter earnings.

The size of the move is a reminder of what can happen when a stock in a beaten-up sector reports something that might encourage investors to think the company is over the worst. In this case, it's Oceaneering and its exposure to offshore oil-field spending.

So what

As noted by the company in its earnings release, "The COVID-19 pandemic negatively impacted operator investments in oil and gas projects, due to a decline in crude oil demand and pricing." Given those market conditions in 2020, it's understandable that some investors have been cautious in putting money into the sector.

An offshore oil rig.

Image source: Getty Images.

But with the price of oil having stabilized and now back up to above $60 a barrel, it might be time to start looking at stocks with exposure to oil and gas spending like Oceaneering International. That viewpoint was strengthened by a better-than-expected earnings report.  

Of particular note, management said that its key subsea robotics business secured more than $225 million of contracts during the fourth quarter of 2020. That represents nearly 46% of the business' $493 million revenue over the full-year 2020.

Wall Street analysts still expect Oceaneering's revenue will decline in 2021, but a bottoming appears to be happening, and it's estimated that sales will bounce back in 2022. Moreover, management expects to generate more free cash flow in 2021 than the $76 million in 2020.

Now what

The results and brighter outlook, in tandem with a higher price of oil, serve notice that there is life after the pandemic for the oil and gas sector. Also, the use of Oceaneering's robots and other products in energy exploration, development, and production has the potential to increase as a share of overall spending on offshore oil-field investment.

Aside from keeping an eye on Oceaneering's public statements and results, it's a good idea to monitor spending conditions in the industry -- notably the capital spending budgets of the major oil companies. The reality is that industry spending is often led by the price of oil, but there can be a lag since it takes time for budgets to be approved. Therefore, even if the pickup in spending isn't immediately apparent after a rise in oil prices, it's likely to kick in sometime in the future.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Oceaneering International, Inc. Stock Quote
Oceaneering International, Inc.
$11.54 (5.92%) $0.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.