NEW BEARISH Plays
Hornbeck Offshore Services, Inc. - HOS - close: 18.61 change: -1.05
Stop Loss: 20.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 21, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 851 thousand
New Positions: Yes, see below
Why We Like It:
The price of crude oil and its crash over the last several months has been a major story for the financial media. Energy stocks have naturally followed the price of oil lower. One company getting crushed by the oil's fall and its impact on the industry is oil services company HOS.
HOS describes itself as "Hornbeck Offshore Services, Inc. is a leading provider of technologically advanced, new generation offshore support vessels primarily in the Gulf of Mexico and Latin America. Hornbeck Offshore currently owns a fleet of 65 vessels primarily serving the energy industry and has eight additional high-spec Upstream vessels under construction for delivery through 2016."
Earnings have taken a dramatic turn for the worse. Last year HOS' Q2 earnings were $0.85 a share. That was 36 cents above estimates with revenues up +24% from a year ago. Their Q3 numbers saw business fade. Earnings were $0.72 a share, which was only one cent above estimates. Q3 revenues did rise +25% but they came in below analysts' estimates. The slowdown really took hold in the fourth quarter. HOS reported earnings of $0.51, which missed estimates by 8 cents. Revenues only rose +10% and again missed expectations.
The problem is low oil prices. The U.S. oil industry has been shutting down oil and gas rigs. Many locations need oil above $60, $70 or even $80 a barrel to make the operation profitable. With oil in the $40 range companies are just shutting down rigs. The number of active rigs has fallen 15 weeks in a row and down -45% from its September 2014 high. Offshore rigs, which really impacts HOS, saw 11 rigs closed down leaving a total of 37. That's a -23% decline in a week.
Wall Street has taken note of falling rig count and analysts have been lowering their earnings expectations for HOS. Traders have noticed as well and the most recent data listed short interest at 16% of the very small 20.4 million share float. That does pose a risk since an unexpected rise could spark a potential short squeeze.
Technically the path of least resistance in shares of HOS has been lower for the last several months. Investors continue to sell the rallies. The bearish trend of lower highs is about to push the stock below key support in the $18.50-19.00 zone. Tonight we're suggesting a trigger to launch bearish positions at $18.20. You may want to use options to limit your risk.
Trigger @ $18.20
- Suggested Positions -
Short HOS stock @ (trigger)
- (or for more adventurous traders, try this option) -
Buy the JUN $17 PUT (HOS150619P17) current ask $1.30
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