The Tenaris (NYSE:TS) story is an odd one. As far as companies hugely exposed to oil and gas drilling activity go, Tenaris has held up better than most through this downturn, with quarterly operating income only recently turning negative and EBITDA remaining positive throughout. Adding to the strangeness, this is a company that will make a double-digit EBITDA margin in a trough year, and has seen EBITDA margins go north of 30% in peak years, despite the fact that industry capacity is usually around double the level of demand (or more) in all but the best of years, and there are numerous commodity producers in China and South Korea willing to operate at razor-thin margins (or take losses) to stay busy.
What's not so odd is that this company's shares have strengthened on expectations that 2016 will mark the bottom for the U.S. onshore energy sector, and that important markets like Argentina will likewise contribute to meaningful growth in the coming years. While I think Tenaris is a well-run company and I am bullish on the prospects for the company's efforts to improve its mix and go-to-market strategy to drive better results, the shares already trade above what would seem fair in a normalized scenario.
Tenaris Has A Lot Of Appealing Qualities, But Undervaluation Isn't One Of Them