Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Oceaneering International (NYSE:OII) dropped as much as 10% today when the company reported record earnings, but also offered more somber guidance numbers than what investors were probably hoping for.
So What: Oceaneering International may be a great oil services provider with a dominant market share in remotely operated submersible vehicles for underwater construction and oil & gas exploration, but almost all of its business is tied to offshore oil and gas, which just happens to be some of the most expensive barrels of hydrocarbons to produce. So when oil prices drop and companies look to cut their capital expenditure budgets, the projects Oceaneering would be needed for will be some of the first on the chopping block.
That is the largest reason why Oceaneering is projecting low earnings for 2015 in its guidance -- $3.10-$3.50 per share, down from 2014's record performance of $4.00. This low guidance was enough to convince some shareholders that it wasn't worth sticking around this year, apparently.
Now What: Oceaneering's Achilles heel is the fact that the company is extremely levered to high oil prices based on the service it provides to the oil and gas industry. Fortunately, the company has a rock solid balance sheet and some of the best operational results for a company in the oil services space, so it has the ability to weather a very long storm. Investors afraid of seeing a company pop and drop frequently should probably stay away, but those with a long term view of the oil market might see this downturn in prices as a great time to go shopping for a top flight company in the energy business.
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