Hercules Offshore 4Q10 Stronger than Expected; Maintain Hold (HERO)

Dahlman Rose released a report today discussing the stronger-than-expected 4Q10 results of Hercules Offshore, Inc. HERO, which operates shallow-water offshore drilling and liftboat services. Excluding a previously-disclosed impairment charge on HERO's offshore rigs and Delta towing service, EPS was ($0.03), which was ahead of the Street's ($0.11) forecast and is the best it's been since the end of 2008.

Operating income was $7.3 million, which Dahlman analysts note is the first positive result since 2Q09. According to the report, the increase can be attributed to an improvement in HERO's domestic jackup segment and higher activity levels in the GoM following a slowdown in shallow-water drilling. HERO's liftboat segment also improved in Q4 with revenues of $35.7 million (up $8 million over Q3).

The report provides the following investment risks for HERO: volatility of the offshore drilling sector due to seasonal fluctuations and susceptibility to external shocks; dependence on the capital expenditure activity from the E&P sector; potential of adverse economic conditions to stall growth; and unexpected downtime or excess capacity.

Dahlman analysts maintain a Hold rating on HERO. It is currently trading at $5.99.