UPDATE: Goldman Sachs Upgrades Oceaneering Intl (OII) to Buy

Goldman Sachs upgraded Oceaneering Intl (NYSE: OII) from Neutral to Buy with a price target of $40.50, implying 45% upside. Analyst Waqar Syed sees an attractive entry point.

"We see potential for further upside based on the following: (1) Should oil reach $55-$60/b WTI in 2017, offshore maintenance and inspection-related activities should increase first owing to better economics than new well drilling. We believe that production-related businesses generate about 35% of OII’s revenues. (2) In 2018, we expect deepwater drilling activity to increase as offshore project breakeven prices come down, and although that activity increase may be immaterial for offshore drillers, it should be more material to OII given its 60%+ ROV related market share in deepwater rigs outside of Brazil. (3) In 2016, we expect OII to generate strong FCF of $187mn, supporting its dividend ($104mn per annum) and leaving capacity for potential share repurchases and acquisitions. Additionally, OII has no debt maturities in 2016/17 and ample liquidity ($385mn cash on its balance sheet and a $500mn undrawn revolver). (4) Given current prospects, we view OII as an attractive M&A target within our coverage and maintain an M&A ranking of 2. (5) From a valuation standpoint, OII is trading close to prior trough levels on a P/TBV multiple basis and its 2017/18 EV/EBITDA multiples of 5.6x and 4.2x are below the coverage average of 7.9x and 6.6x," said Syed.

For an analyst ratings summary and ratings history on Oceaneering Intl click here. For more ratings news on Oceaneering Intl click here.

Shares of Oceaneering Intl closed at $28.61 yesterday.

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