Why Hercules Offshore, Inc. Slipped Again
While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Hercules Offshore fell 4% today after Wells Fargo downgraded the drilling services company from outperform to market perform.
So what: Along with the downgrade, analyst Matthew Conlan lowered his valuation range to $5-$6 (from $8-$9), representing about 13% worth of upside to yesterday's close. While contrarians might be attracted to the stock's big plunge yesterday, Conlan thinks that Hercules' appreciation prospects remain limited given the recent concerns surrounding its Gulf of Mexico jackup business.
Now what: According to Wells Fargo, Hercules' risk/reward trade-off is pretty balanced at this point. "We and the market were definitely spooked by HERO's decision to abort the planned reactivation of a GOM jackup (as announced Wednesday night), showing management's concern about the strength and depth of HERO's most important cash-flow generating market," noted Conlan. "With this sudden market warning, especially considering the age of HERO's fleet, we have substantially reduced our target EBITDA multiple, down to just 3.5x from approximately 5.5x." When you couple those concerns with Hercules' hefty debt load and relatively weak market position, it's tough to disagree with Wells' downgrade.
More compelling energy picks
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, The Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.
The article Why Hercules Offshore, Inc. Slipped Again originally appeared on Fool.com.Fool contributor Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.