1. Hornbeck Offshore Services
Muneeb Ahmed and Alex Vegh
11/22/2014

2. Table of Contents Company Overview Investment Thesis Internal Analysis
External Analysis
Valuations
Catalysts
Risks
Price Target and Conclusion

3. Historical Performance
Company Summary
Company Description
Management Team
Provides marine transportation services to E&P companies and U.S. military
Transports petrochemicals from offshore platforms to refineries on land
Offshore Supply Vessels (OSVs), Multi-Purpose Supply Vessel (MPSVs)
Todd M. Hornbeck, CEO: co-founded company
Carl G. Annessa, COO: experienced in naval architecture and marine engineering
James O. Harp Jr., CFO: Previously served as VP in Energy Group of RBC securities. Worked with marine transportation companies in the past
Historical Performance
Key Facts
Market Price(11/19/14)
$30.93
52wk Range:
24.93 - 54.40
Market Cap:
1.09B
P/E (ttm):
11.95
EPS (ttm):
2.51
Beta
1.64
Enterprise Value (EV)
1.92B

5. Investment Thesis Growing fleet – help generate FCF in future
Super efficient – High gross margins and high utilization/dayrates
Strong industry growth prospects
Undervalued - comparable analysis and DCF analysis
Recommendation: Buy Price Target: $37.00
Presents a 20% upside potential

6. One of the Largest Fleets and Growing
Internal Analysis
One of the Largest Fleets and Growing

7. Strong Revenue and EBITDA Growth
Internal Analysis
Strong Revenue and EBITDA Growth

8. Efficient Use of Fleet Assets
Internal Analysis
Operating Margins
Efficient Use of Fleet Assets

9. External Analysis
Strong Demand for Oil

10. External Analysis Industry Projections
Large CAPEX from E&P companies driving demand for offshore supply vessels

11. External Analysis
Industry Projections

12. External Analysis Porter’s Five Forces Analysis
Bargaining power of suppliers:
low
2 shipbuilders
Many shipbuilders to choose from - competitive bidding process
Threat of new entrants: low
Threat of substitutes: low
Industry rivalry:
low
Main customers -deepwater platforms
Pipelines not economically feasible
OSVs and MPSVs best option
Low
Requires huge capital investment (non-threat)
Bargaining powers of buyers: moderate
HOS has large fleet with highest DWT
HOS services customers from “cradle-to-grave”

13. Valuation Comparable Analysis Hornbeck Offshore Services Tidewater
Seacor Holdings
Gulfmark Offshore
Bristow Group
Average
Price Target
Price to Earnings (TTM)
12.7
11.71
25.3
10.2
21.1
16.20
$40.18
EV/EBITDA
6.85
7.2
7.66
6.88
10.19
7.76
$38.06
Price to Book
0.84
0.7 1
0.8
1.4
0.95
$35.12
Net Income Growth (3yr Avg)
45.2
9.9
-46.7 42
12.2
12.52
Avg. PT: $37.79
Operating Margin % (TTM)
27.8
15.3
10.6
22.8
10.3
17.36
Net Margin % (TTM)
21.3
5.2 16
6.6
11.94
Return on Assets
4.08
3.66
1.08
4.01
4.72
3.51
Return on Equity
9.05
5.92
2.37
6.75
8.36
6.49

14. DCF Analysis WACC Calculations Sensitivity Analysis
Cost of Equity
Cost of Debt
Rf=2.36%
Rd=4.45%
ß=1.63
Tax Rate=27%
Rm = 5.59%
Re=7.63%
Cost of Debt= 3.46%
E/V=0.46
D/V=0.54
WACC = 5.26%
WACC
Exit Multiple
4.26%
4.76%
5.26%
5.76%
6.26%
16.3
26.59
25.28
24.09
22.99
21.98
21.3
34.48
32.95
31.54
30.24
29.02
26.3
42.38
40.62
34.00
37.48
36.06
31.3
50.27
48.29
46.45
44.73
43.11
36.3
58.16
55.96
53.90
51.97
50.15
Exit multiple: 26.3x (P/FCF)
Fair Value= $34.00
Upside Potential = 13%

15. Catalysts and Risks Catalysts Oil price recovery
Large oil discoveries in GoM and other Deepwater locations
Risks
Manufacturing delays
Introduction of affordable, and scalable renewable energy sources
Heavily affected by oil price volatility

16. Price Target and Conclusion
Growing fleet – will help generate FCF in future
Super efficient – High gross margins and high utilization/dayrates
Strong industry growth prospects
Undervalued in comparison with peers and based on DCF analysis
Recommendation: Buy Price Target: $37.00
Presents a 20% upside potential

17. Thank You
Questions?

18. Bibliography
“Hornbeck Offshore Services Investor Presentation - September 2014”. PowerPoint presentation
Bloomberg L.P. (2006) Stock Price of Hornbeck Offshore Services compared to Brent Crude Oil Spot Price 01/01/03 to 11/06/14. Retrieved Nov. 6, 2014 from Bloomberg database. 
“Hornbeck Offshore Services." Hornbeck Offshore Services. Web. 6 Nov <

19. Appendix

20. DCF Analysis - Detailed
HOS DCF Analysis
HOS FCF calculations
Previous Year (2013)
2015
2016
2017
2018
2019
Revenue Growth $ $ $ $
$ ,020.32
$ ,101.95
% increase -
18.80%
10.00%
9.00%
8.00%
Operating Costs $ $ $ $ $
Operating Cost Margin % 70 73 75 76
Tax expenses $ $ $ $ $
Tax Rate 27
Net Investment 80
Working Capital $ $ $ $ $ $
Change in Working Capital $ $ $ $ $
Free Cash Flows $
$ (7.22) $ $ $
HOS WACC calculations
Cost of Equity (using CAPM model) Rf
2.36
ß (Beta)
1.63
Rm (using the earnings based approach- K%=E/P)
Re (Cost of Equity)
Cost of Debt Rd
2.35
Tax rate
27%
Cost of Debt (after taxes)
1.7155
Cost of Equity
Equity to Value (E/V)
0.46
Rf=2.36%
Rd=2.35%
Debt to Value (D/V)
0.54
ß=1.63
Tax Rate=27%
WACC (Weighted Average Cost of Capital)
Rm = 5.59%
Re=7.63%
Cost of Debt= 1.72%
HOS Terminal Value
E/V=0.46
D/V=0.54
(using the exit multiple model) Exit multiple is 33.45
3.5098
0.9288
WACC = 4.4% EV
$ ,130.17
EV-debt
$ ,280.17
Fair Value $
Current Shair Price $
Upside potential

21. Oil price projections
 ”….falling prices curtail investment, you don’t have the same kind of growth and the market gets back in more balance” - Daniel Yergin, Pulitzer Prize winner

22. HOS earnings and Revenue vs Oil price

23. Industry projections

24. Industry projections
Well depths are increasing and moving away from the shore

25. Industry projections
On Oct 23, 2014, Chevron announced a new oil discovery at the Guadalupe prospect in the deepwater U.S. Gulf of Mexico. 
The well is located approximately 180 miles off the Louisiana coast in 3,992 feet of water and was drilled to a depth of 30,173 feet
Jay Johnson, senior vice president, Upstream, Chevron Corporation. “Our deepwater exploration and appraisal program continues to unlock important resources in the Gulf of Mexico.”

26. Risks-Safety
RIR – Recordable Incident Rates