Market Overview

Credit Suisse Predicts 3 Earnings Beats And 6 Misses From Offshore Drillers


In a recent report, Credit Suisse gave their updated outlook for battered offshore drilling stocks. Last year was a nightmare for offshore drillers, as collapsing crude oil prices suffocated demand for drilling. But will things get better for drillers in 2015?

Bleak Outlook

Analysts believe that Q4 earnings numbers in the space will be relatively unimportant compared to the companies’ updated guidance for 2015. A large portion of all the drillers’ 2014 revenue came from rigs that will be rolling off contract in 2015 and 2016. It's unclear what (if anything) the drillers will be able to do to replace that revenue in this environment.

The issue is most pressing for Hercules Offshore, Inc. (NASDAQ: HERO) and Rowan Companies PLC (NYSE: RDC), the drillers with the highest percentage of revenue rolling off contract in the first half of 2015.

Cash Is Critical

Analysts believe that drillers will be conserving cash in any way possible in 2015. The most obvious way to do so is by reducing/suspending dividend payments and share buyback programs. In other words, it's unlikely that Transocean Ltd (NYSE: RIG) shareholders will see an 18 percent dividend yield in 2015.

Stocks Remain Heavily Shorted

Even though offshore drilling stocks are down about 50 percent in 2014, the companies remain heavily shorted. The heavy short interest may be a sign that  traders believe the pain is not yet over for the drillers, even though the groundwork is now in place for major short covering should the oil market stabilize and/or recover sooner than expected.

Earnings Predictions

Credit Suisse predicts earnings beats for Ensco PLC (NYSE: ESV), Seadrill Ltd (NYSE: SDRL) and Atwood Oceanics, Inc. (NYSE: ATW). They below-consensus earnings coming for Hercules, Rowan, Transocean, Noble Corporation PLC (NYSE: NE), Diamond Offshore Drilling Inc (NYSE: DO) and Pacific Drilling SA (NYSE: PACD).

Latest Ratings for HERO

Jan 2016MaintainsHold
Jun 2015DowngradesNeutralUnderweight
May 2015MaintainsHold

View More Analyst Ratings for HERO
View the Latest Analyst Ratings

Posted-In: Credit SuisseAnalyst Color Short Ideas Analyst Ratings Trading Ideas


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