Seeking Alpha: Gulfmark Swamped By Pessimism

Quite a bit has changed for Gulfmark Offshore (NYSE:GLF) in the year since I last wrote about the shares. Not only did the hoped-for increase in drilling activity in the Gulf of Mexico not materialize, but the sharp decline in oil prices has reduced activity across all of Gulfmark's operating regions. Making matters worse, more boats have come into service and operators have accepted big declines in dayrates (particularly in the spot market) to keep their boats working.

There are a lot of ways to frame the damage done to Gulfmark shares. The stock price is down two-thirds from a year ago and the average sell-side price target has fallen by about 70%. Just in the past few months, sell-side analysts have cut their EBTIDA estimates for 2015 and 2016 by as much as 75% in many cases.

With shares trading at less than half their tangible book value, it's tempting to ask whether the Street has gone overboard. Gulfmark does have a modern fleet that can serve major drillers like Chevron (NYSE:CVX) and offshore drilling will eventually recover. The problem is that situations like this can get a lot worse before they get better. Gulfmark may manage to go through the bottom of the cycle without posting negative free cash flow, but it will likely be a close call and it could take a while for dayrates to recover. That said, if you want to play an aggressive contrarian view that pessimism on offshore energy activity has gone too far, this would be a name to consider.

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Gulfmark Swamped By Pessimism