Monthly Archive for December, 2009

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Cal Dive International (DVR) Trading at a Probable Compelling Value

Posted on December 2, 2009, 12:27 am. Closed

Here is the description for Cal Dive International (DVR):

Cal Dive International, Inc., a marine contracting company, provides marine construction, diving, and offshore services to offshore oil and natural gas industry. The company offers manned diving, pipelay and pipe burial, platform installation, saturation, and platform salvage services, as well as construction, inspection, maintenance, and repair and decommissioning of offshore production and pipeline infrastructure. It primarily operates in the Gulf of Mexico Outer Continental Shelf, the northeastern U.S., Latin America, southeast Asia, Australia, the Middle East, India, and the Mediterranean. Cal Dive International provides its services to oil and natural gas producers, pipeline transmission companies, and offshore engineering and construction firms. As of December 31, 2008, it owned and operated a fleet of 31 vessels, including 21 surface and saturation diving support vessels, 6 pipelay/pipebury barges, 1 pipebury barge, 1 combination derrick/pipelay barge, and 2 derrick barges. The company was founded in 1975 and is headquartered in Houston, Texas.

Today, DVR closed at a price of $7.21 per share, which I think represents a good value based on a variety of metrics:

  • It has a current P/E of 5.9, which is an earnings yield of about 16.95% – way better than current treasury yields
  • Price to sales ratio of  0.71 – you’re paying 71 cents for a dollar of sales
  • Price to book ratio is 0.97 – you’re paying slightly less than what the company is worth when you take all the assets and subtract all the liabilities
  • Price to free cash flow is 3.7 – that’s a huge cash flow yield of about 27%
  • Insider ownership is extremely high – insiders own 59% of the company
  • This past June, insiders purchased 49,000 shares for a total purchase price of $416,500

Recently, the share price has declined from a high of about $11.50 and is sitting at $7.21. I think this is largely a result of a disappointing third quarter and the sale of a large number of shares by Helix Energy Solutions Group, a 10% owner.

Based solely on the above metrics, I believe this company is definitely worth further study and scrutiny. I think chances are very good this company is a compelling value at this price. (click image for larger size)

2009-12-01-dvr

Some Investor Education and Tools

Posted on December 1, 2009, 11:13 am. 1 Comment

Here are two fine posts I think will be very helpful in the valuation of companies. The first comes from Barel Karsan regarding returns on equity and how they are sometimes not what they seem to be. The second comes from Old School Value and talks about Ben Graham’s simple method of valuing a company and explains the process of modernizing the equation.

In addition to considering liquidation value, discounting cash flows, and-sum-of-the-parts analysis, I should also use Graham’s simple method as another tool in gaining a better understanding of a company’s probable value.