Susquehanna Downgrades Noble Corp. To Neutral Following Recent Rally

Susquehanna’s Charles P. Minervino downgraded the rating on Noble Corporation Ordinary Shares (UK) NE from Positive to Neutral, with a price target of $11.

Reasons For Rating Change

Following the 62 percent surge in the share price, from the recent low on February 11, 2016, Minervino believes that there isn’t sufficient upside from the current levels t justify a Positive rating.

“The rating change has less to do with the specifics of Noble and more to do with the challenges facing the offshore drilling industry during a time when customer budgets will be down sharply again in 2016,” the analyst explained.

With the offshore drilling sector struggling with structural, cyclical and secular issues, Minervino believes that investors should prefer stocks with diversified services, as well as land drillers, which are likely to be better positioned to benefit from the initial stages of an oil price recovery.

Positives For Noble

“We continue to view NE's 2016-2017 contract coverage, relatively younger fleet vs. the industry, relatively strong balance sheet vs. the industry, and experienced management team, as advantages for the company relative to other offshore drillers,” Minervino pointed out.

However, with expectations of only marginal incremental demand for floaters over the next 12 months, the analyst prefers to wait for greater visibility into a recovery in offshore spending or more attractive valuation before recommending the stock.

Following Noble Corp’s most recent fleet status report, the EPS estimate for 2016 and 2017 have been raised.