Updated Research Report on Rowan Companies - Analyst Blog

On Mar 13, 2014, we issued an updated research report on Rowan Companies plc RDC. The company posted fourth quarter 2013 earnings from continuing operations of 42 cents per share, at par with the Zacks Consensus Estimate. Quarterly earnings, however, decreased from the adjusted year-ago profit level of 44 cents.

Total revenue grew 11.1% year over year to $393.4 million in the fourth quarter and beat our expectation of $388.0 million. The growth was mainly attributable to higher average dayrates, increased activity from fleet additions and higher utilization of existing rigs between periods.

Rowan's premium high-specification rig fleet enjoys greater utilization than most other shallow-water fleet. The growing demand in the global jackup market with the current fleet-wide utilization of 83% and operating utilization of 91% signifies the ever-increasing tendering activity that has increased the dayrates.

Rowan is positioned advantageously with its several contract rollovers in 2013. The contracts on these rollovers will further help the company in reducing the rig downtime days and provide impetus for increased operations.

Rowan's deeper focus on high-spec resources, as well as impending tendering activities for multi-year drilling programs in key markets including the North Sea, Southeast Asia, Australia and Saudi Arabia, are likely to support the requirement for high-spec units.

However, going forward, contract drilling expenses are predicted to increase 5% to 7%, while selling, general and administrative expenses are likely to increase 16% from last year. The interest expense is also expected to rise due to the recent debt issue. As a result, Rowan's earnings will most likely be adversely affected when these higher expected costs are taken into account.

Key Picks from the Sector

Rowan Companies currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the energy sector like Range Resources Corp. RRC, Patterson-UTI Energy Inc. PTEN and Helmerich & Payne, Inc. HP. All the stocks sport a Zacks Rank #1 (Strong Buy).