Tenaris’s 1-year returns compared to the industry
Tenaris’s (TS) one-year returns were 13.2% as of March 7, 2018. In comparison, since March 8, 2017, the Energy Select Sector SPDR ETF (XLE) has fallen 3.5%. The VanEck Vectors Oil Services ETF (OIH) had a one-year return of -20.4%. TS has significantly outperformed OIH and XLE in the past year. However, it underperformed the SPDR S&P 500 ETF (SPY), which returned 15.3% in that period. TS accounts for 5.1% of OIH.
Crude oil price and rigs
On March 7, 2018, the price of WTI (West Texas Intermediate) crude oil was ~22% higher than a year ago. It was led by crude oil’s strength and a 28% increase in the rig count in the United States in the past year. You can find out about the latest energy prices in Market Realist’s What Do Investment Banks Think about Crude Oil Prices?
Some recent factors that affected TS’s returns
- Tenaris’s revenues increased 52% in 4Q17 compared to 4Q16. Compared to 3Q17, its revenues increased 22%. Higher demand for TS’s Rig Direct service, which consists of field services, pipe management services, and technical consulting services, led to higher revenues in 4Q17. The delivery ramp-up for East Mediterranean pipelines, higher oil country tubular goods (or OCTG) sales in the Middle East, and a strong demand for mechanical products in Europe supported higher 4Q17 revenues.
- TS recorded $162.1 million in net income for 4Q17 compared to $24.5 million in 4Q16. Compared to 3Q17, its net income rose 70%. Its 4Q17 net income was boosted by a $61 million gain due to reductions in income tax rates in Argentina and the United States due to deferred tax liabilities.
- TS’s cash flow from operating activities (or CFO) was negative in 2017 compared to $863 million in 2016. Despite the rise in revenues, adverse changes in working capital led by a rise in inventories resulted in CFO deterioration in 2017. TS’s free cash flow was also negative in 2017.
In this series, we’ll look at Tenaris’s implied volatility, its correlation with crude oil, and Wall Street’s recommendations. Let’s start by looking at Tenaris’s stock price forecast.