Hercules Offshore, Inc. (HERO)

This met a high level screen to indicate a sell and strong underperform against its peers (other tickers in its industry). My 1st version of this spreadsheet devles deep into the company's balance sheet and recent income statements, combined with other relevant price data for the company including insider/institutional holdings, short interest, debt levels, etc.
I'm testing capabilities of this 1st version of my automated, valuation spreadsheet matched with my personal criteria and see how it holds up.

HERO is certainly my hero. Since I got in back in April, at $1.74, I am up almost 200% actual and about 166% vs the S&P.

Since I am in this stock in real life, with real money, that 200% works fine for me.

There has been a lot of speculation and disagreement about the eminent demise of this company. On Oct. 7th there was an MF article telling about what a winner it was going to be. Then on Oct. 9th, there was another one telling about why you should avoid it like the plague.

It seems the primary reason some have written this off is that they are a shallow water service company with too much debt; and there is some validity to those points.

I would however like to share some contrary thoughts on this subject. The oil and gas business, like others over the past year or so has been hit hard,; and the servicing companies even harder. I do believe, however, it will come back as there is recovery in the economy. I disagree that shallow water drilling is a thing of the past. There has been some recent activity in this area; and as a native of the Gulf Coast, I just do not buy into the argument that all of the oil and natural gas in these waters (as well as shallow waters globally) has been discovered. I have been involved in the O & G industry in the past. It costs a lot less to recover and does not have to be a "home run" to pay off.

Now, as to their debt, they have taken recent steps to address that. They did a stock offering on Sept. 30 which should net them about 83M; and sold Senior Secured Notes of $300M on Oct. 8th. Their stated purpose for these offering was to pay down debt. They had too much for these times and that was a prudent and necessary thing to do.

The notes do not mature until Oct. of 2017, and will require semi-annual payments of about $15M beginning in April of 2010.

They showed a big loss in 2008, but his was due to writing off about 1.3B (mostly in goodwill). I like it when a company cleans up their balance sheet by getting rid of goodwill and impaired assets.

This was their first loss since going public in 2005.

They have had relatively small losses in the first half of 2009 (about $17M), but that is to be expected in the current economic situation.

As of June 2009, they had total assets of about $2.5B and total debt of about $1.5B. Their tangible net worth (no goodwill), was just under 1B.

Their current assets were $440M , to $255M in current liabilities.

They had a positive operating cash flow, and a positive leveraged free cash flow, which I think is very goog in these times.

While they will not likely get back to their historic highs of about $40 a share, there is still a lot of upside to this stock. Their current PE is only 4.5.

The latest analyst recommendation in September is to SELL, but I always take those recommendations with a grain of salt; whether good or bad.

Since I am in at $1.74 (took a chance when things looked even bleaker), I am very comfortable in holding this for the longer term and benefiting even more than my current (paper) profits. I am also comfortable in saying that in my opinion, this is still a good buy for the patient, longer term investor, who does not panic at the latest rumor or fluctuations and gyrations in the market.

As always, this is JMO and worth exactly what I am charging for it.

decent management and a change of administration in 2012

THIS IS NO BRAINER......LIKE TAKING CANDY FROM A BABY

SCHWAB rec

This seems to be more of a natural gas play. Questionable management. Very weak outlook for natural gas over the next several years.

Low PE. Great company. Oil has nowhere to go but up. Plus, it is a service company.

Bought this stock at $3.12 along with TRMA at $2.90...2 of the best purchases I've made thus far as both have attributed to nearly a 70% return for my overall portfolio. Despite movements toward alternate energy and fuel, oil is too dominate to simply be shoved over, and while ppb will never be at $140 again, having it go to $80 will easily affect additional 50-100% returns by both companies. Wish I had more cash at the moment to buy up more

Off Florida, Can you say El Nino, Hurricane??
Any one??

I found JakilaTheHun's writeup compelling. Enough so, I have purchased this stock for my own portfolio. I did run my own numbers before buying. I am convinced of the stock's safety, but less so of its price appreciation. The recent earnings release and conference call butressed my decision. Nonetheless, this is a stock I will be watching closely and ready to exit quickly. Sorry about not taking the time to publish the results from my analysis. Perhaps after the new quarterly data becomes available for electronic uploading.

too far too fast

I own this in real life

When oil prices grow the need for rigs will grow and HERO will go higher.

They are managing to keep rigs working fairly steadily and provide good service.

Beat down, but recent efforts to cut debt indicate it will survive the downturn. Energy won't stay beat down forever.

These guys are more likely to go bankrupt than outperform the S&P. More rigs are getting cold stacked and they have too much debt.

I initiated this pick at $1.78. I went long on this in real life at $3.80. HERO is now trading around $4.15.

HERO's net tangible assets are worth $10.33 per share as of March 31, 2009. Debt-to-value is moderately high at 64.1%, but that's not actually that high compared to other companies operating in this industry. HERO has relatively strong liquidity. Current ratio is 1.71 and quick ratio is 1.51. Add to that strong operating cash flows.

While HERO is currently losing money on their income statement, the cash flow picture is much better. For Q1 for FY '09, they had a loss per share of 5 cents, but they brought in 87 cents per share in operating cash flows and 51 cents per share in free cash flows. A substantial portion of that can be attributed to depreciation and amortization charges, which are recurring non-cash items.

The most surprising thing about this first quarter performance is that it covered a period where oil prices were more suppressed than they have been in awhile. The logical conclusion is that demand for their services will increase as oil prices continue their inevitable march up towards $70+/gallon. At that point, offshore oil becomes more attractive and investors become more interested in companies like HERO.

HERO has actually had positive operating cash flows for the past three fiscal years. However, their free cash flows have been negative as they, like most other companies in the oil service industry, took on debt to rapidly expand their operations. They have suffered with all the others, but under $5, I think the stock is a good, but risky, buy.

After running a DCF analysis, my most probable valuation for HERO was around $23. Downside probable valuation is $15. Upside probable valuation is $32. Downside risk is $0 due to their moderately heavy debt load. Upside potential might be around $45.

Oil has been the energy of choice for automobiles. With this huge decline in oil it seems that it is the best time to buy. The world cannot change their choice of energy, at least not in the short term. This is a short term play depending on how fast oil prices rise. Hero seems to have too much debt for me to take seriously. China will be the biggest factor in my decision on whether this stocks moves up.

small but potentially mighty