Mitcham Industries, Inc. (NASDAQ:MIND)

CAPS Rating: 3 out of 5

Through its subsidiaries, the Company provides full-service equipment leasing, sales and service to the seismic industry. The Company operates in two segments, Equipment Leasing and equipment manufacturing.


Player Avatar Sqwii (< 20) Submitted: 6/2/2008 2:04:18 AM : Outperform Start Price: $21.74 MIND Score: -122.65

Even with the price of oil going up at a pace not seen in recent history, the oil service sector has lagged. These service companies have done quite well, but not like the commodity. When looking through this sector, many companies like RIG and NOV come to mind. Both of these stocks have done quite well, as countries are now drilling for oil deep under the ocean floor and it takes a particular expertise for these operations. My call on OII on 91 days ago is up 37%. This entire sector has plenty of catching up to do and they will probably do it in a hurry. One company that caught my eye has earnings on Monday. They seem to be very well positioned going into earnings.

The company is MIND. This company is in the unloved industry of seismic data. They sell and lease geophysical equipment. This equipment is used to look under the ground and see the make up. This provides valuable data for the oil and gas industry. With much of the oil deep in the ground it is much more inconsistent using soil samples and older technologies. This equipment will give you the makeup, depth and size of the particular densities you are looking for. Buying this company into earnings seems like a good bet, based on last year's financials. Revenues were up 56%, operating income increased 151%, and EPS was up 19% last year. They currently get 70% of their revenues from outside North America. Their leasing equipment segment increased 38% over the last fiscal year. They acquired $26 million in new leasing equipment during that time and $25.5 million over the year prior. Half of the leasing equipment acquired last year was obtained in the fourth quarter, so it didn't add much to the leasing revenues.

The strangest piece of this puzzle was the comments made by their CFO as he stated he did not believe that they would generate any more revenue for this year then last, and based it on their phenomenal growth last year. His estimate of between $78 and $82 million not only seemed conservative, but disappointing. I do believe they were sandbagging when they made this estimate. As with many good companies, they have under promised making their earnings very beatable. Over the last four quarters this company has beaten estimates by 30%, 30.8%, 26.3% and 18.5% respectively. Another reason I believe that this number was very low is that no one could have seen the unbelievable rise in the price of oil since the beginning of the year. This could show a huge increase as many countries overseas have upped their exploration and production capital expenditures. MIND should benefit from this directly.

I also believe that this quarter's estimates are very low. Revenue is estimated to be 14.6% lower than the same quarter last year. Earnings are estimated to be down 2.6% year over year for the quarter. After a company repeatedly beats estimates, you would at least think that the estimates would be higher than the achievements at over half the price of oil. The chart is also bullish. On May 29th the stock had a triple top breakout. The current trend points to a price target of $28.50. This stock looks to be headed for the highs of the beginning of last year. There was also a bullish move in the stock on Friday.

The company seems very cheap as it is selling for a PE of 19.12 with 22.5% growth expected for the year. This company has grown 65% a year for the last five and is estimated to grow 15% for the next five. Unless oil bottoms, growth should be much higher than this in the upcoming years, this is the problem with many of these companies as analysts believe that oil is headed lower in the upcoming years with the new production being produced. I believe this company is a buy and has very good long term growth ahead.

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