DPDW.OB

[Ramsburg]

Deep Down, Inc. (DPDW.OB)

Profile: Deep Down, Inc. provides products and services to the offshore energy industry to support deepwater exploration, development, and production of oil and gas, and other maritime operations worldwide.
Sector: Industrial Goods / Industrial Equipment & Components
Market Cap: $140M
Website: http://www.deepdowninc.com

Technical Analysis:

DPDW is running a well defined uptrend since February, consistently making new higher relative highs and higher relative lows and reacting positively to the support levels and technical references. The 50-EMA ($1.02) is currently above the 200-EMA ($0.91), both averages with positive leaning.  The volume has been high with many sessions consistently above average.

Current short term resistance @ $1.225 and last relative high @ $1.268, these are the upside references for now, but above these levels there is only significant resistance above $2.00.

Fundamental Analysis:

I found DPDW while searching for Oilfield Services companies specialized in deep water exploration. Recent South American oil findings (coast of Brazil, etc) are creating a great demand for these kinds of services, and I expect this to increase even more with potential new drillings under way.

The Company fundamentals look solid and with great prospects, Dahlman Rose Analysts just published a new note of research:

Reiterate Buy rating and $2.50 price target. Our $2.50 price target is derived using a 15x peer group EV/EBITDA multiple applied to our $32 million 2009 EBITDA estimate. While our target multiple is higher than the peer group average, we believe it is warranted given the high growth potential we anticipate at Deep Down this year and next.  

They expect a $0.07 EPS in 2008 and $0.11 for 2009, as their price target sets at $2.50 right now using an EV/EBITDA multiple of 15X.

Trading Idea:

We expect DPDW to keep trading this bullish layout, reacting positively at the supports and breaking out into new relative highs soon. The sector is hot, and DPDW seems to be well positioned to benefit from this bullish scenario.
DPDW is an OB, so we must understand the risks when trading this kind of stocks. Even so, its average 3m volume is 275,957 shares, it's profitable and coverage is being posted by analysts.
While having great expectations from the company's fundamentals, we'll be monitoring DPDW technical analysis close, it is important that DPDW keeps above its 50-EMA.

Trading Plan:
We will be buying DPDW.OB today around the open.

Best regards,

[berloga]

Isn't an OB stock better suited for the Speculative portfolio? Are you applying similar trading rules to the OB stocks as to the regularly traded shares?

[setravis]

With some more info on the Penny Board...
http://www.3stocksonfire.org/trading/index.php?topic=9851.msg116352#new

[Ramsburg]

Isn't an OB stock better suited for the Speculative portfolio? Are you applying similar trading rules to the OB stocks as to the regularly traded shares?

Hi berloga,

In this case, having this penny on the diversified portfolio means having just 6.6% of the portfolio exposed to it, while having it in the speculative portfolio would mean a 20% exposure. DPDW.OB is not like other OBs we've traded in the past, it has a minimum volume, market exposure and analyst coverage, so I'm not expecting the same issues we had with CIMT or CHME, etc.

About trading rules, we're going to apply technicals on this one, so probably if it fails to maintain this bullish layout or it breaks the 200-EMA level, will be selling it despite of our fundamental view on it.

With some more info on the Penny Board...
http://www.3stocksonfire.org/trading/index.php?topic=9851.msg116352#new

Thanks Setravis
I saw that you were already following this stock for a while

[Ramsburg]

Update:

No changes from a technical point of view, as DPDW kept trading inside the recent range.

A top story that may have a positive outcome for Deep Down:
- Bush to Congress: Embrace energy exploration now
With gas prices reaching record highs, Bush wants Congress to lift ban on offshore drilling

We're not setting the stop right away, but we'll be introducing a stop level soon (probably near the 200-EMA, we'll assume something like 30% risk on this pick against 100% expected return).

Trading Plan:
HOLD DPDW.OB

[Ramsburg]

Update:

Terrible Friday for DPDW, as it broke down the ascending support line in play. Anyway, while processing a big upswing like this one since February, its normal to watch this kind of behavior sometimes. DPDW is still above its 200-EMA and apparently reacted well on its $0.96 support, so far this can be just a normal consolidation.

Our expected target for DPDW if this trade goes well is slightly above $2.40, so we're introducing a stop level slightly below the 200-EMA that gives us a 1/3 risk/reward ratio. The new trading plan is:

Trading Plan:
HOLD DPDW.OB with a stop @ $0.85

[la-onda]

in @ 1.01 

[Ramsburg]

DPDW.OB stopped @ $0.85

[sir_joke]

Back on the radar...

DPDW announces 96% increase in revenues (unaudited financials)

Also announces that the company is almost entirely debt free.  See last paragraph.

cheers,
SJ

Deep Down Announces 96% Increase in Revenues
9:00 AM EDT August 20, 2008
HOUSTON, Aug. 20 /PRNewswire-FirstCall/ -- Deep Down, Inc. (OTC Bulletin Board: DPDW) announced unaudited results on August 15, 2008, for the three months and six months ended June 30, 2008, on Form 10-Q filed with the U.S. Securities and Exchange Commission.

Deep Down generated revenue of $14.2 million for the six months ended June 30, 2008 compared to $7.2 million for the same period last year, an increase of $7.0 million, or 96%. Our acquisitions accounted for $5.1 million of this increase. Mako was included for the entire period and accounted for $2.7 million of the increase. Flotation Technologies was included for two months and accounted for $1.5 million of the increase. ElectroWave was included for six months and accounted for $0.9 million of the increase, but the six month period in 2007 included only three months revenue for ElectroWave since it was acquired in April 2007. Our existing businesses continued to strengthen with increased revenues of $1.9 million, or 29%, over last year's six month period. Contract revenues were up 25%, and rentals were up 47%. Our offshore market continues to be strong as we continue to expand our customer base.

Deep Down generated revenues of $7.9 million for the three months ended June 30, 2008 compared to $5.1 million for the same period last year, an increase of $2.8 million, or 54%. Our acquisitions represented $3.0 million of the increase in revenue in addition to a slight revenue decrease in the core business of $0.2 million. This slight decrease in revenue was a result of certain customers delaying scheduled projects.

Gross margin for the six months ended June 30, 2008 was $4.8 million compared to $2.7 million in the same prior year period, an increase of $2.1 million, or 79%. $1.4 million of the increase is attributable to the inclusion of the acquisitions in this period. The overall gross margin was 34 % for the first six months of 2008 as compared to 37% for the same period last year. The gross margin is slightly lower due to an increase in personnel.

SG&A for the six months ended June 30, 2008, was $5.4 million compared to $1.8 million for the same period last year, an increase of $3.6 million, or 209%. The acquisitions of Mako and Flotation represented $1.5 million of the increase. Bad debt expense increased by $0.8 million due to the write-off of two accounts, one of which filed for bankruptcy protection during the quarter ($0.2 million of the total bad debt is included in the Mako subsidiary). Personnel and related costs increased by $1.0 million primarily due to an expansion of our businesses, combined with the related costs of administering a public company and complying with reporting requirements. Additionally, we paid approximately $0.7 million in professional, accounting, and legal fees to support our various initiatives during the six months ended June 30, 2008, including the filing of a registration statement, acquisitions and reporting requirements. Stock based compensation related to employee stock options and restricted stock was approximately $0.3 million in the current fiscal year compared to approximately $40,000 for the comparable prior year period.

Operating loss for the six months ended June 30, 2008, was $1.5 million compared to operating income of $0.8 million for the same prior year period. Net loss for the six months ended June 30, 2008, was $5.0 million compared to net income of $0.8 million for the same prior period. Income was impacted by one-time interest expense and loss on debt extinguishment expenses totaling $2.6 million related to the early payoff of our secured credit agreement (the "Credit Agreement"). Earnings before interest, taxes, depreciation, amortization and other non-cash charges ("EBITDA") for the six months ended June 30, 2008, was $0.5 million, compared to $1.0 million, a decrease of $0.5 million over the same prior year period.

Interest expense for the six months ended June 30, 2008, was $3.5 million compared to $1.5 million for the same prior year period. In connection with the early payoff of the Credit Agreement, Deep Down accelerated the remaining deferred financing costs totaling $0.7 million and recorded this charge to interest expense. Additionally, $1.5 million in debt discounts were accelerated and recorded to interest expense, along with early termination fees of approximately $0.5 million. Deep Down paid cash interest related to the Credit Agreement totaling $0.8 million for the six months ended June 30, 2008. For the comparable period last year, $1.4 million of the total interest was related to accretion on the redemption of Series G and Series E Preferred Stock.

"I am pleased to report this quarter that Deep Down continues to improve its financial position. The Company is now essentially debt free and has retired all of its remaining preferred shares. Liquidity is strong with unrestricted cash and equivalents of $4.1 million and a current ratio of 3.8. Our working capital position is $10.8 million. Stockholders' equity has improved dramatically and is now $52.9 million compared to $12.6 million on December 31, 2007. We remain excited and optimistic about the prospects for continued revenue growth and a return to profitability," commented Robert E. Chamberlain, Jr., Deep Down's Chairman.

[Buyhigh?]

Still on the radar?  They made money last quarter....