Accustomed to operating in harsh environs, oil services company OceaneeringInternational
The culprit? After the close yesterday, Oceaneering announced that its acquisition of Subsea 7's (what a name!) remotely operated vehicle (ROV) drill rig support business failed because "conditions of closing have not been met." Vague as that sounds, Oceaneering will nonetheless write off up to $1.8 million in pre-tax expenses related to the transaction.
Likely what upset the market was that Oceaneering trimmed its earnings guidance a nickel to $1.55 to $1.65 a share. To put that another way, it lowered its guidance by $1.2 million, and investors lowered the company's market capitalization by $105.7 million (an unlucky 13%). Talk about harsh!
Investors should take a second look. At the low end of guidance, the stock sells for 19 times forward earnings, a multiple that might make sense for a company not expecting to grow earnings by 20% in 2005 -- before any accretive effects of acquisitions. That's right, accretive acquisitions. For example, the recently acquired ROV operations of Stolt Offshore
Moreover, acquisitions can have an outsized impact on Oceaneering's per-share earnings because there are a modest 24.3 million shares outstanding. Debt, at 34% of capital, is also reasonable. Add in that the stock trades at a relatively modest 8.4 times cash flow, and you have to wonder about the severity of today's sell-off.
For perspective, competitors Stolt and Global Industries
It's been a rough day for Oceaneering and its investors. Looking at the numbers and considering the competition, you have to wonder if the stock's treatment wasn't a little over the top.
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Fool contributor W.D. Crotty follows oil and oil-related businesses -- and can still smell the aroma of the oil refinery where he worked during college. Pew! He likes the aroma of a cattle feedlot, too! W.D. does not own stock in any companies mentioned.