BUSINESS
Helix Energy Solutions Group, Inc., an offshore energy services company, provides specialty services to the offshore energy industry primarily in Brazil, the Gulf of Mexico, North Sea, the Asia Pacific, and West Africa regions. The company operates through three segments: Well Intervention, Robotics, and Production Facilities. It engages in the installation of flowlines, control umbilicals, and manifold assemblies and risers; trenching and burial of pipelines; installation and tie-in of riser and manifold assembly; commissioning, testing, and inspection activities; and provision of cable and umbilical lay, and connection services. The company also provides well intervention, intervention engineering, and production enhancement services; inspection, repair, and maintenance of production structures, trees, jumpers, risers, pipelines, and subsea equipment; and related support services.
INVESTMENT RATING
HLX’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a modest Value Builder.
Helix Energy Solutions Group has a current Value Trend Rating of B (Positive).
The Value Trend Rating reflects inconsistent signals from PTR’s two proprietary measures of a stock’s attractiveness. Helix Energy Solutions Group has a neutral Appreciation Score of 57 but a very high Power Rating of 86, producing the Positive Value Trend Rating.
Helix Energy Solutions Group’s stock is selling well below targeted value. The current stock price of $10.25 compares to targeted value 12 months forward of $16.
This neutral appreciation potential results in an appreciation score of 57 (43% of the universe has greater appreciation potential.)
Helix Energy Solutions Group has a Power Rating of 86. (HLX’s very high Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 14% of companies in the universe.)
Factors contributing to this very high Power Rating include: recent price action has been extremely favorable; and the Oil & Gas Field Servics, NEC comparison group is in a strong phase currently. An offsetting factor is earnings estimate behavior for HLX has been slightly negative recently.
INVESTMENT PROFILE
HLX’s financial strength is low. Financial strength rating is 22.
Relative to the S&P 500 Composite, Helix Energy Solutions Group Inc has significant Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that HLX is higher risk. Low financial leverage is a positive for HLX. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, high stock price volatility, low expected growth, and low historical growth. HLX’s valuation is moderate: low dividend yield, moderate P/E ratio, and low price/book ratio. HLX has unusually low market capitalization.
CURRENT SIGNALS
Helix Energy Solutions Group’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
Helix Energy Solutions Group’s current technical position is mixed. The stock price is in a 4.4 month down move. The stock has declined 15.4% from its prior high. The 200 day moving average is in an uptrend. The stock price is below its 200 day moving average.
ALERTS
Positive development: significant quarterly sales acceleration occurred. Negative development: significant quarterly earnings deceleration occurred.
In light of this new information we are reviewing our current Overall Rating of B. This review will be completed in the next several days.
Helix Energy Solutions Group Inc (NYSE: HLX) has reported a loss for its fourth fiscal quarter (ending December 31) of $-0.19 versus $0.02 for the same period a year ago — a decline of -1050%. This result fell short of the consensus estimate of $0.12 by $-0.31. For the latest four quarters through December 31, E.P.S. were $-0.07 versus $-0.58 for the same period a year ago.
Helix Energy Solutions Group Inc (NYSE: HLX) stock rose modestly by 0.9% on 2/26/24. The stock closed at $10.25. Trading volume in this advance was normal. The stock has been exceptionally strong relative to the market over the last nine months and has risen 3.4% during the last week.
CASH FLOW
In 2022, Helix Energy Solutions Group experienced a very significant reduction in cash of -$138.0 million (-42%). Sources of cash were much lower than uses. Cash generated from 2022 EBITDA totaled +$116.5 million. Non-operating uses consumed -$28.9 million (-25% of EBITDA). Cash taxes consumed -$0.7 million (-1% of EBITDA). Re-investment in the business amounted to -$220.6 million (-189% of EBITDA). On a net basis, debt investors supplied +$38.6 million (+33% of EBITDA) while equity investors withdrew -$43.0 million (-37% of EBITDA).
HLX’s Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Helix Energy Solutions Group Peer Group. (Since 2019 Non-operating Income, %EBITDA has experienced a very sharp decline.) In most years, Helix Energy Solutions Group was in the top quartile and second quartile. Currently, Helix Energy Solutions Group is substantially below median at -25% of EBITDA (-$28.9 million).
HLX’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Helix Energy Solutions Group Peer Group. In most years, Helix Energy Solutions Group was in the second quartile and top quartile. Currently, Helix Energy Solutions Group is at the upper quartile at -1% of EBITDA (-$0.7 million).
HLX’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Helix Energy Solutions Group Peer Group. In most years, Helix Energy Solutions Group was in the third quartile and second quartile. Currently, Helix Energy Solutions Group is substantially below median at -189% of EBITDA (-$220.6 million).
HLX’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Helix Energy Solutions Group Peer Group. In most years, Helix Energy Solutions Group was in the lower quartile and top quartile. Currently, Helix Energy Solutions Group is upper quartile at +33% of EBITDA (+$38.6 million).
HLX’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Helix Energy Solutions Group Peer Group. (Since 2017 Equity Investors, %EBITDA has accelerated very sharply.) In most years, Helix Energy Solutions Group was in the second quartile and top quartile. Currently, Helix Energy Solutions Group is lower quartile at -37% of EBITDA (-$43.0 million).
HLX’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Helix Energy Solutions Group Peer Group. In most years, Helix Energy Solutions Group was in the second quartile and lower quartile. Currently, Helix Energy Solutions Group is lower quartile at -118% of EBITDA (-$138.0 million).
HLX’s Cash, %Revenue has suffered a strong overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Helix Energy Solutions Group Peer Group. In most years, Helix Energy Solutions Group was in the top quartile. Currently, Helix Energy Solutions Group is slightly above median at +22%.
PROFITABILITY
HLX’s return on equity has eroded very significantly since 2013. The current level is 1.3% versus the high of 7.3% and the low of -29.5%.
This very significant erosion was due to very strong negative trend in pretax operating return and minor negative trend in non-operating factors.
The productivity of HLX’s assets rose over the full period 2013-2023: asset turnover has exhibited a volatile overall uptrend that sharply accelerated after the 2016 level.
More than offsetting this trend, however, pretax margin experienced a strong overall downtrend but it experienced a very sharp recovery after the 2021 low.
Non-operating factors (income taxes and financial leverage) had a small negative influence on return on equity.
HLX’s return on equity is slightly below median (1.3%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is slightly below median (1.3%) reflecting asset turnover that is above median (0.51X) and at median pretax margin (2.6%).
Tax “keep” rate (income tax management) is lower quartile (62.4%) resulting in after tax return on assets that is slightly below median.
Financial leverage (leverage) is at the lower quartile (1.59X).
GROWTH RATES
There are no significant differences between Helix Energy Solutions Group’s longer term growth and growth in recent years.
Helix Energy Solutions Group’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been -2.7% per year. (More recently it has been 8.1%.)
Total asset growth has been -4.7% per year.
Annual E.P.S. growth has been -16.3% per year.
Equity growth has been -3.2% per year.
No consensus growth rate forecast is available for Helix Energy Solutions Group.
Relative to the Helix Energy Solutions Group Peer Group, Helix Energy Solutions Group’s historical growth measures are erratic. Revenue growth (-2.7%) has been slightly above median. Total asset growth (-4.7%) has been slightly below median. E.P.S. growth (-16.3%) has been substantially below median. Equity growth (-3.2%) has been slightly below median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Helix Energy Solutions Group’s stock price performance has been volatile and significantly below market. Between April, 2013 and February, 2024, Helix Energy Solutions Group’s stock price fell -56%; relative to the market, this was a -86% loss. Significant price moves during the period: 1) June, 2022 – February, 2023: +167%; 2) September, 2020 – June, 2021: +137%; 3) March, 2020 – July, 2020: +155%; 4) December, 2019 – March, 2020: -83%; 5) November, 2016 – May, 2017: -52%; and 6) February, 2016 – April, 2016: +121%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 18.5% is substantially above median relative to the S&P 500 Composite.
In addition to being substantially above median relative to S&P 500 Composite, current annual total return performance through January, 2024 of 18.5% is at the upper quartile relative to Helix Energy Solutions Group Inc Peer Group.
Current 5-year total return performance of 6.6% is below median relative to the S&P 500 Composite.
Through January, 2024, with below median current 5-year total return of 6.6% relative to S&P 500 Composite, Helix Energy Solutions Group’s total return performance is above median relative to Helix Energy Solutions Group Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, HLX’s overall valuation is low. The highest factor, the price/earnings ratio, is upper quartile. Ratio of enterprise value/earnings before interest and taxes is at median. Ratio of enterprise value/assets is lower quartile. Ratio of enterprise value/revenue is lower quartile. The lowest factor, the price/equity ratio, is lower quartile.
Relative to Helix Energy Solutions Group Peer Group, HLX’s overall valuation is normal. The highest factor, the price/earnings ratio, is upper quartile. Ratio of enterprise value/assets is slightly above median. Price/equity ratio is at median. Ratio of enterprise value/earnings before interest and taxes is below median. The lowest factor, the ratio of enterprise value/revenue, is below median.
Helix Energy Solutions Group has a very large value gap compared to the median valuation. For HLX to rise to median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.58X to 1.96X. If HLX’s ratio of enterprise value/revenue were to rise to 1.96X, its stock price would be lower by $3 to $13.
For HLX to hit lower quartile valuation relative to the Helix Energy Solutions Group Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 1.58X to 1.36X. If HLX’s ratio of enterprise value/revenue were to fall to 1.36X, its stock price would decline by $-2 from the current level of $10.
VALUE TARGETS
HLX’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a modest Value Builder.
Helix Energy Solutions Group’s current Price Target of $16 represents a +53% change from the current price of $10.25.
This neutral appreciation potential results in an appreciation score of 57 (43% of the universe has greater appreciation potential.)
With this neutral Appreciation Score of 57, the high Power Rating of 86 results in an Value Trend Rating of B.
Helix Energy Solutions Group’s current Price Target is $16 (+14% from the 2022 Target of $14 and +53% from the 02/26/24 price of $10.25). This slight rise in the Target is the result of a +1% increase in the equity base and a +13% increase in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple. The forecasted growth has no impact. The forecasted increase in cost of equity has a very large negative impact.
PTR’s return on equity forecast is 5.8% — in line with our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2014 and 2022. The current forecast is below the 2014 peak of 11%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth erratic between 2014 and 2022. The current forecast is steady at the 2014 peak of 0%.
PTR’s cost of equity forecast is 3.8% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2014 and 2022. The current forecast is below the 2015 peak of 7.6%.
At Helix Energy Solutions Group’s current price of $10.25, investors are placing a negative value of $-4 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 4.0% versus a cost of equity of 3.0%.
PTR’s 2024 Price Target of $16 is based on these forecasts and reflects an estimated value of existing assets of $20 and a value of future investments of $-5.
Be the first to comment