RigNet's Business Could Face Continued Pressure Into 2017

Oppenheimer expects the fundamentals of RigNet Inc RNET to continue to be pressured by rig losses through 2017, although visibility remains limited.

The company reported another quarter of severe declines on oil market downturn.

During the second quarter, the company suffered a net loss of 21 off-shore rigs, and was notified of an additional 15 rigs in service that will be stacked by the end of the year.

The new management team has put in place restructuring efforts that will take $3.5 million of costs out of the business and is planning to deliver over-the-top applications to its core market and growing in new verticals outside of the offshore rig market.

"RNET's business will likely remain under pressure into 2017 as additional off-shore rigs are stacked. While a diversification plan is in place, this will likely take some time," analyst Timothy Horan wrote in a note.

As such, the analyst cut his 2016 revenue/EBITDA estimates by 4 percent/16 percent and lowered his revenue/EBITDA estimates in 2017 by 5 percent/17 percent. Horan now expects a loss of $0.19 a share for 2016, down from a profit of $0.10 a share, and sees a loss of $0.17 a share for 2017 (prior estimate of EPS of $0.12).

"Trading at 9x our 2017E EBITDA, we would continue to remain on the sidelines until we see an inflection point in drilling activity as valuation does not offer much downside support in our view," Horan added.

Horan has a Perform rating on the stock, which is currently up 3 percent to $12.51.