NEW BEARISH Plays
Hornbeck Offshore Services - HOS - close: 15.49 change: -0.71
Stop Loss: None, no stop at this time.
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on September -- at $---.--
Listed on September 21, 2015
Time Frame: Exit prior to earnings in late October
Average Daily Volume = 925 thousand
New Positions: Yes, see below
HOS has been crushed over the last couple of years and there appears to be no end in sight.
HOS is part of the basic materials sector. They're in the oil equipment and services industry. According to the company,
"Hornbeck Offshore Services, Inc. is a leading provider of technologically advanced, new generation offshore service vessels primarily in the Gulf of Mexico and Latin America. Hornbeck Offshore currently owns a fleet of 66 vessels primarily serving the energy industry and has eight additional ultra high-spec Upstream vessels under construction for delivery through 2016."
The energy sector has been hurt by the bear market in crude oil. The sell-off in crude started in June 2014. Yet the sell-off in HOS started in late 2013, more than six months before crude oil turned lower. Falling oil prices make it unprofitable for companies to do a lot of drilling offshore, which is significantly more expensive than normal drilling methods. Today there are only 31 active offshore oil rigs. That's down from 66 offshore rigs a year ago.
HOS management seems to be doing a good job in slashing expenses. They have managed to beat Wall Street's estimates on the bottom line number. Yet HOS has been unable to stop the plunge in revenues. Last quarter revenues fell -20% from a year ago.
Moody's just downgraded HOS' credit rating and changed their outlook to negative. Here is an excerpt from the Moody's press release,
"Hornbeck benefits from the scale and quality of its fleet, and good liquidity, but its credit metrics will continue to be negatively impacted by the very challenging environment facing the offshore sector through 2017" said Sreedhar Kona, Moody's Senior Analyst. "The negative outlook reflects our expectation of continued deterioration in the utilization of offshore supply vessels and their day rates"
The bearish conditions in the energy sector are not secret. Investors have been selling the rallies. Bears have piled on HOS with short interest at 33% of the small 25.5 million share float. That does raise the risk of a short squeeze.
Technically the trend is down. It was just a few days ago that Goldman Sachs outlined their worst-case scenario that saw crude oil falling to $20 a barrel. It could take years for the world to work through the current supply glut that will keep oil prices depressed.
HOS' point & figure chart is forecasting at $12.00 target. Today HOS displayed relative weakness with a -4.3% decline. Tonight we are suggesting a trigger to launch bearish positions at $15.30. More conservative traders might want to wait for a breakdown below $15.00 before launching bearish positions.
*Due to the high short interest I am suggesting small positions to limit risk*
Trigger @ $15.30 *small positions to limit risk*
- Suggested Positions -
Short HOS stock @ $15.30
- (or for more adventurous traders, try this option) -
Buy the DEC $15 PUT (HOS151218P15) current ask $1.85
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike