On Tuesday, Barclays (LON:BARC) made an adjustment to its outlook on Oceaneering International (NYSE:OII) shares, downgrading the stock from an Equalweight to an Underweight rating. The firm also revised its price target to $21 from the previous $22. The change in rating and price target reflects concerns over the company's growth prospects and free cash flow generation.
The analyst from Barclays noted that Oceaneering International's guidance for mid-single-digit growth this year, described as "more than 5%," is largely due to the defensive nature of its portfolio.
This characteristic is expected to make it challenging for the company to significantly benefit from the anticipated double-digit increase in offshore upstream spending over the next few years.
Oceaneering's Energy segments, which account for approximately 80% of its revenue, consist of various businesses with generally low growth profiles. However, an exception is the remotely operated vehicles (ROVs) business, which contributes around 25% of revenue and has experienced a rise in pricing to multi-year highs.
Despite these pricing improvements in the ROVs business, the firm cited a lack of clear earnings visibility and the absence of medium-term targets from the company's management as reasons for concern. These factors are believed to potentially restrict the company's future free cash flow generation.
The new price target of $21 is based on a multiple of 6.0 times the firm's 2025 EBITDA estimate, a multiple that has remained unchanged. The downgrade to an Underweight rating suggests that Barclays has a less favorable view of Oceaneering International's stock performance potential moving forward.
InvestingPro Insights
In light of Barclays' recent downgrade of Oceaneering International (NYSE:OII), a closer look at the company's financial metrics and market performance can offer additional context. According to InvestingPro data, Oceaneering International has a market capitalization of $2.36 billion and is trading at a P/E ratio of 21.55, which is considered low relative to its near-term earnings growth. The company's revenue growth over the last twelve months as of Q1 2024 stands at a robust 15.29%, with a quarterly revenue growth of 11.57% for Q1 2024.
InvestingPro Tips highlight that Oceaneering International operates with a moderate level of debt and has liquid assets that exceed its short-term obligations. Analysts predict the company will be profitable this year, as evidenced by its profitability over the last twelve months. However, it's worth noting that the company does not pay a dividend to shareholders, and it suffers from weak gross profit margins of 16.64%.
For investors considering Oceaneering International's stock, it may be beneficial to take into account the volatility in stock price movements, as well as the additional 6 InvestingPro Tips available that could provide a deeper analysis. Interested readers can find these tips at InvestingPro's dedicated page for Oceaneering International, and can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.