Diamond Offshore Gets A Pair Of Upgrades

Diamond Offshore Drilling Inc DO shares have been on a downward trend over the past one year, and have lost 26 percent since March 11, 2015. Diamond Offshore’s shares are down 43 percent since October 24, 2014, versus a 36 percent decline in the OSX and a 1 percent gain in the S&P 500.

Goldman Sachs Cites Improved Liquidity And Balance Sheet

Goldman Sachs’ Waqar Syed upgraded the rating for Diamond Offshore Drilling Inc DO from Sell to Neutral, while raising the price target from $18 to $24, citing the company’s improved liquidity and balance sheet relative to offshore drillers.

Diamond Offshore has already taken EBITDA reductions as many of its rigs have rolled over. “Within the offshore drilling group, we now expect the least deterioration in EBITDA for DO through 2018 given relatively better contract coverage,” analyst Waqar Syed stated.

Diamond Offshore has better liquidity and balance sheet than many of its peers. The company’s balance sheet strength is likely to support the stock through the downturn, Syed commented.

“DO’s YTM of 9% and 33% probability of default are below the offshore drillers average of 15% and 60%. Additionally, its 2017/18 net debt to EBITDA ratio of 2.5x/2.8x is less than the peer group average of 4.2x/6.1x,” the Goldman Sachs report noted.

Diamond Offshore recently suspended its dividend and plans to retire another 5 jackups in the coming year as part of its efforts to preserve cash. The company has the highest contract coverage of 44. Syed added, however, that soft demand and oversupply are expected to pose headwinds to industry growth.

Piper Jaffray Cites Balance Sheet And Valuation

In another report, Simmons & Co, energy specialists of Piper Jaffray, also upgraded the rating for the company from Underweight to Neutral, while raising the price target from $16.50 to $19. Analyst Ian Macpherson cited improved relative valuation and rising primacy of safer balance sheets as the reasons.

Diamond Offshore offers both balance sheet and backlog safety at the expense of “indifferent valuation,” Macpherson commented.