idea #19 Tidewater (TDW)

Tidewater came up on a "defensive Graham" AAII screen.  Someone wrote it up on VIC in late 2006 as a short.  On the surface, I like that it's shown 3 years of disappointing shareholder returns, all the while posting nice earnings.  It has a moderately high ROA and low P/E.  It's trading at around $45 and the lowest it hit during the financial crisis was only $33. 

The VIC writeup's thesis was that earnings were temporarily too high and that the share price should fall to $30ish, 12x normalized earnings of $2.50 per share.   I think the writer's perspective is wrong on a couple of fronts;  It's hard to find stuff, even if it is cyclical, with attractive balance sheets and reasonable earnings multiple.  12x unleveraged earnings is cheap. And 2nd, his perspective on normalized earnings has proved to be too low.  Even given the fact that their shipping contracts are for 18+ months (which the original author might have missed), I still think they can earn $4 over the long term.

The company is in promotional mode.  They just did an investor presentation that argued "vessel retirements are higher than replacements" so prices will likely stay high.  This is the exact same issue the short thesis was focused on in 2006.  The thing that impresses is me is that prices stayed high throughout recession and commodity collapse, thus I'm understanding the $4 normalized earnings.  This company has low fixed costs, and high variable costs.  It would be nice to own if you could get it really, really cheap.  I think it's current price is a little cheap.  Based on the screens, I think it's likely to get a little more expensive.  Global warming is a farce, drill baby drill?

Buy this type of strong balance sheet & good asset investment when OSV dayrates collapse.  Right now, they are strong.