Tuesday, July 02, 2013

Hombeck Offshore Services

The ninth largest holding in the exchange traded fund Power Shares S&P Smallcap Energy (PSCE: Nasdaq) is HOS.  Five percent of the fund assets are invested in HOS common stock.  Hombeck was added to the S&P Smallcap 600 Index, on which the PowerShares ETF is based, in January 2007.  Thus Hombeck has been in the ETF from its inception, giving us a good reason to look closer at Hombeck.

Hombeck Offshore Services (HOS:  NYSE) operates a fleet of supply and transport vessels used to serve off-shore oil and gas installations.  Hombeck has customers in the Gulf of Mexico, Latin America and the Middle East.  Its fleet is composed of fifty offshore supply vessels for customers with upstream installations.  Hombeck uses a fleet of nine barges and fourteen ocean-going tugs to transport refined and bunker grade oil products along coastlines.  The company reported $36.9 million in net income or $1.02 per share on $540.3 million in total sales in the twelve months ending March 2013.  Operations generated $159.2 million in cash.

There is some debt on Hombeck’s balance sheet, leaving the debt-to-equity ratio at 112.2.  Debt totals $1.1 billion.  If that figure seems high for a small company, investors should note that cash totals $714.3 million.  The business has historically generated positive cash flow that supports capital spending and leverage strategies.

Hombeck has 35.8 million shares outstanding of which 5.5 million are held by insiders.  That leaves a modest 30.3 million shares available for trading.  Average daily trading volume is a modest 490,000 shares.  We also note that there is short-interest equivalent to 10% of the float.  Since the stock is widely held by institutions, the constructive float is significantly smaller.  Modest trading volume, skimpy float and significant short-interest make an interesting combination that could lead to price volatility.  Indeed the beta measure for HOS is 1.94.

While we note that trading volume is modest, HOS volume has increased over the past five years.  A review of the historical price chart for HOS reveals an increase in trading volume beginning in January 2007 when Hombeck was added to the S&P Smallcap Index.  Another spike in volume can be seen in April 2010 when the PSCE was opened. 

The consensus price target is $63.36, representing 16% upside from the current price level.  If achieved the new market capitalization would be $2.2 billion.  The implied growth rate is a pinch faster than the average growth rate for the oil and gas services industry, suggesting that Hombeck may gain value on other sector players.  That could lead to rebalancing in indices like the S&P Smallcap 600 Energy Index.

 
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

 

 

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