ROWAN LONGS TREADING WATER UNTIL CRUDE PRICES LIFT ENERGY SECTOR OUT OF THE ABYSS

Rowan Companies PLC RDC, like so many other energy service names, has seen its stock demolished over the last seven years overall – and over the last two years in particular – as crude oil has descended from the mid-$100s down to the mid-$50s. Yes, both crude oil and RDC prices have been lower in the recent past, but the technical crowd is warning of even lower lows to come. Can the economic, fundamental and geo-political forces come together to produce an upward trajectory for crude oil going forward? Seemingly, that's what it will take for the energy service names to see sustainable upside in their prices. Can Rowan's management work their magic to be able to decline less than the sector on the way down and recover faster on the way up? Let's take a look at the overall picture for Rowan to develop a game plan for the stock… What the bulls see in Rowan… • An annual dividend yield of 1.90% • Some decent balance sheet metrics: o Total debt-to-equity ratio of 58.4% o A current ratio of 1.92 • Some attractive valuation metrics: o An enterprise value of $5.38 billion versus a market capitalization of only $2.66 billion o A price-to-sales ratio of 1.29 o A price-to-book ratio of 0.54 What the bears see in Rowan… • A P/E ratio of 9 that seems expensive versus estimated revenue and EPS growth of 0.60% and -13.80% respectively for next year • Negative net profit margins of -2.55% for the year that spin off annual levered free cash flows of - $1.42 billion • A return on equity of -1.04% • Total cash of $56.79 million versus total debt of $2.81 billion The technical take on RDC shares… The technical crowd seems to still be of the opinion that Rowan stock is in the midst of a macro "ABC" downside correction with an eventual target of just above $10 per share. If Rowan moved down to that level – again (after doing so in 2009) – it would represent a fulfillment of the ABC projected downside based on Fibonacci calculations. The technicians note, however, that RDC is still oversold on the monthly chart despite the last couple of months' worth of bounce. A monthly close above $21.40 would be required to open up the door to more of a bounce in the near future. If that level can be eclipsed, then a continued rebound up to around $30 should occur. A failure to take out $21.40 on a monthly closing basis, though, keeps the bears firmly in control and $10 as the downside target for RDC. Overall… Cheap valuations in Rowan and its brethren are clearly being outweighed by bearish fundamental factors affecting crude oil prices and the energy industry right now. An expansion in the demand side of the supply / demand equation for crude oil needs to occur so that oil prices can rise and give the industry reason to commence drilling again. That is the only thing that will give the energy services sector the tailwind needed for significant, sustainable price appreciation to occur.