TDW Stock: The Shipping Play You Have Been Waiting For
Oil and gas prices are soaring, and as a result, shipping companies are in high demand. One company, in particular, Tidewater (NYSE: TDW), is trending upward. TDW stock is up 140% YTD as momentum builds.
With demand for gas and oil soaring, Tidewater is seeing a huge turnaround in its business. After going bankrupt in 2017, the shipping company is surging back stronger than ever.
For one thing, supply chain issues are driving shipping costs up, making companies like Tidewater more profitable. On top of this, the momentum doesn’t look to slow anytime soon as nations look to fill the oil and gas supply gap.
As a leading provider of Offshore Service Vessels (OSVs), Tidewater is critical to sustaining the global energy industry. Find out what role Tidewater plays in the global energy market and what to expect from TDW stock below as energy prices surge higher.
What Role Does Tidewater Play in the Global Energy Market?
The energy industry is critical to sustaining the global economy. For example, you need gas to power your car and oil to heat your home and produce electricity.
Therefore, with any disruptions, prices can swing wildly. During the pandemic, oil demand fell drastically, causing prices to crash. In fact, prices fell below zero for the first time since they started tracking oil futures.
As we saw for years before the pandemic, when oil prices fall, it discourages companies from drilling. Since commodity prices are driven by supply and demand, drilling will only increase supply further.
Tidewater transports supplies and materials for offshore oil and gas exploration as an OSV provider. The company uses its vessels to transport and provide services such as:
- Towing
- Anchoring
- Supplies
- Personnel
Furthermore, Tidewater supplies services for offshore wind farm production. So, Tidewater’s business is heavily reliant on energy demand. With low demand, fewer companies engage in drilling activity.
On the other hand, if demand is high, it leads to higher commodity prices. As a result, businesses are more incentivized to increase supply. In turn, TDW stock sees higher demand for its services.
Energy Making a Comeback in 2022
Fast forward a few years, and energy prices are near record highs. Gasoline prices hit the highest level since 2012 over Memorial Day weekend at $4.59 per gallon. Moreover, oil prices are settling at over $115 per barrel, up 52% this year.
With this in mind, demand is skyrocketing as economies reopen from pandemic-driven lockdowns. Yet, supply is limited for a few reasons.
- Over 100 oil and gas companies were driven to bankruptcy during the pandemic.
- Sanctions over Russian oil, the world’s second-largest crude exporter, are squeezing the market further.
E.U. leaders announced yesterday they would be banning Russian crude oil traveling via sea. At the same time, they are allowing for crude traveling via pipeline to ensure a smooth transition with nations heavily reliant on imports.
The ban comes after the U.S. banned imports in early March, causing oil prices to spike over $130 a barrel.
As a result, investors are rushing to energy stocks to take advantage of the earnings growth. To illustrate, the SPDR S&P Oil & Gas E&P ETF (NYSEARCA) is up 60% YTD compared to the S&P 500 Index (SPX), down 14%.
Given these points, energy companies are quickly reopening previously halted projects while starting new ones to capture higher profits. The Baker Hughes Rig Count shows the number of active drilling rigs is up 270 from last year while international is up 111.
Nonetheless, TDW stock is up 140% this year as investors look to capture the growth in offshore activity. Keep reading to find out what’s next for TDW stock.
TDW Stock Soars on Higher Vessel Demand
After merging with Swire Pacific Limited, Tidewater currently operates 174 OSVs, the world’s largest fleet. Moreover, the company does business in all corners of the world, from North and South America to Europe, the Middle East and Africa.
The company is seeing growth with higher demand and skyrocketing shipping rates across the board. Even before the company had a chance to realize the higher rates, TDWs business was booming.
For example, for the three months ended March 31, 2022, the average day rate shot up to $10,687, the highest since Q4 2020. Furthermore, Global Fleet Utilization rose to 70.9% compared to 52.9% in Q1 2021. CEO Quintin Kneen commented, saying, “Tidewater is uniquely positioned to capitalize on what is looking to be a truly transformational period for vessel activity and day rate improvements over the next several quarters.”
The company saw considerable growth in Europe and West Africa. With this in mind, TDW stock soared on the earnings growth, gaining 47% within a week. Yet the company still posted a net loss of $12.2 million for the quarter.
In comparison, Tidewater decreased its loss by 65% compared to Q1 2021 loss of $35.3 million. Despite that, the company claims, “Tidewater now has the strongest, most liquid, and most flexible capital structure in the industry.”
Will the momentum continue throughout the year? With shipping rates remaining elevated and energy in high demand, Tidewater believes so.
TDW Stock Forecast: A Bright Future?
Tidewater is in a unique position to continue expanding. For one thing, shipping rates are consistently rising. Here are the average day rates for the past five quarters:
- Q1 2021: $11.9 million
- Q2 2021: $13.2 million
- Q3 2021: $13.7 million
- Q4 2021: $14.6 million
- Q1 2022: $15.5 million
As you can see, day rates are rising along with energy prices. Higher demand for energy equals more business for Tidewater. In particular, with several Russian oil bans now in place, we could see nations looking elsewhere. As a result, Tidewater will likely see strong demand for its services while the global energy supply is restocked.
TDW stock is already up 140% this year but is down significantly since oil prices collapsed in 2014. As a result of falling oil prices and nonexistent demand for services, Tidewater went bankrupt.
Meanwhile, the oil market is booming. Demand for new energy sources is soaring as several nations face record energy prices. Looking forward, Tidewater will likely continue building momentum this year.
TDW stock is not for everyone. Tidewater’s profits rely on the energy market. If the market does not see relief, TDW stock will continue benefitting.
At the same time, you can see how quickly profits can dry up when supply catches up. Keep this in mind while considering an investing time frame if you plan on buying TDW stock.