Oppenheimer Lowers Estimates on Diamond Offshore (DO)

Oppenheimer is out with a research report this morning, where it reiterates its Outperform rating on shares of Diamond Offshore Drilling

; it has an $85.00 price target on the stock. The Oppenheimer analysts said, “We are lowering our EPS estimates based on Diamond's most recent rig report. The company reported force majeure has been declared on five rigs due to the recent moratorium on offshore drilling in the Gulf of Mexico. While Diamond believes this is not grounds for force majeure, we believe compromises will ultimately be reached in the vein of Noble's recent contract renegotiations. As a result, we now assume these rigs will earn a standby rate for the rest of 2010, and in some cases downwardly revised day-rates once drilling resumes. Our 2010/2011E EPS go to $7.40/$7.50, from $7.84/$7.99.” They added, “We now assume these rigs will earn a standby rate of $150K/day in 2H10 (in line with NE). We then cut day-rates on the Confidence and Monarch to $400K (from $512K and $442K) in exchange for a six-month extension (the Endeavor also gets an extension at its current below-market rate of $295K).” Interestingly, the Oppenheimer analysts also pointed out, “We stick with our forecast for a $6/sh annual dividend for now. We model 2011 operating cash flow less maintenance cap-ex at around $1.1B, ~$7.85/sh. Our assumed 2011 dividend payout of 80% is also in line with the 2009 level. That said, we still see a 50% chance of a cut to $4.” Learn how to find the best

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