In their fourth quarter, Dawson Geophysical’s (DWSN) business continued to contract. Another crew was cut in the quarter as revenues fell 45% as compared to the fourth quarter of 2008 to $47 million. The company lost $2 million for the quarter or $0.26 per share. Dawson’s business, however, depends largely on natural gas prices. The rise in natural gas prices could lead to greater demand from their customers later this year.
As of 9/1/09, natural gas prices were $2.85/MMBTU, down from a high of over $9/MMBTU a year earlier. Since then, prices have risen to $5.69/MMBTU. If Dawson’s customers soon benefit from these rising prices, exploration may be expanded. The same dynamic recently led to a double in Oyo Geospace shares as traders bid up their price in tandem with oil prices.
Don’t expect a quick expansion in crews from Dawson, but if natural gas prices remain at these levels, shares may head higher well before the bottom line expands. Adding just two crews in a rising market could bring $55 million in revenues and $12 million in owner earnings per quarter (excludes depreciation). Even at 10 times $48 million in annual cash flow, shares could rise to $60 per share.
Keep in mind this is potential. Capital spending from natural gas companies has to follow the rise in prices. Still, at $25 per share, it may be worth picking up some additional shares of Dawson.
Disclosure: I currently hold shares of Dawson Geophysical, I have no holdings in Oyo Geospace.