On Wednesday, Barclays (LON:BARC) adjusted its stance on Oceaneering International (NYSE:NYSE:OII), shifting the rating from Overweight to Equalweight. The firm increased the price target to $26.00, up from $22.00. Currently trading at $25.29, the stock sits within analysts' target range of $22-$34, according to InvestingPro data, which shows the company trading near its calculated Fair Value.
The reassessment by Barclays reflects a change in perspective regarding Oceaneering International's market position and business strengths. Initially, the firm had a less favorable view of the company, anticipating that smaller subsea suppliers would struggle in a market leaning towards integrated projects.
Despite previous concerns, Oceaneering's remotely operated vehicles (ROVs) business was highlighted as a robust area with high margins, low capital expenditure, and limited competition. This segment benefits from demand driven by both rigs and vessels.
The company's financial health score of "GOOD" on InvestingPro supports this strength, with revenue growing 12.8% over the last twelve months and a healthy current ratio of 1.76x. Additionally, the company's subsea backlog, covering approximately 20% of revenue, and stable project revenue were noted as positive factors.
Barclays also pointed out the potential growth in the non-energy segments of Oceaneering's business, which currently makes up 27% of revenue. The firm suggested that aerospace and defense spending could increase, making this part of the business thematically more interesting, although it acknowledged the difficulty in modeling this aspect.
The price target increase to $26 is based on a 7x multiple of the company's projected 2025 EBITDA of $388 million, which remains unchanged. This multiple is an increase from the previously used 6x, reflecting the firm's recognition of strong earnings visibility in Oceaneering's Manufactured Products business, which is driven by the company's backlog.
With a P/E ratio of 18.75x and an EV/EBITDA of 9.33x, investors seeking deeper insights into Oceaneering's valuation metrics and growth potential can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
In other recent news, Oceaneering International reported solid financial results for the third quarter of 2024. The company announced a net income of $41.2 million, translating to $0.40 per share, on revenues of $680 million. Additionally, the company saw a considerable increase in free cash flow, reaching $67 million. Adjusted EBITDA for the same period reached $98.1 million, with full-year projections ranging from $340 million to $350 million.
Oceaneering also announced the appointment of Benjamin M. Laura as its new Senior Vice President and Chief Operating Officer, effective January 1, 2025. Furthermore, the company has acquired Global Design Innovation Ltd. (GDi), a UK-based digital and software services company, to enhance its digital capabilities.
In addition to these developments, Oceaneering secured a multimillion-dollar contract from the U.S. Department of Defense for autonomous underwater vehicles. However, the company's Offshore Projects Group experienced declines due to a shift towards lower-margin services. Looking forward, the company's outlook for the fourth quarter of 2024 projects rising revenue and stable adjusted EBITDA, with EBITDA guidance for 2025 set between $400 million and $430 million.
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