Pacific Drilling, Seadrill Downgraded At Credit Suisse, Notes Recovery Delayed Until At Least 2018

In a report published Thursday, Credit Suisse analyst Gregory Lewis maintained an Underperform rating on the entire Offshore Drillers sector while simultaneously downgrading

to Underperform (with a price target lowered to $5 from a previous $7) from Neutral and

to Neutral from Outperform (with a price target lowered to $3 from a previous $4). Lewis continued that the Offshore Drilling sector will recovery, but while bulls point towards a 2017 recovery, bears are pointing towards a recovery only starting early next decade. The analyst suggested a base case which is in the middle of the bull and bear timeline and expects a recovery to begin in 2018/2019. "While the timing of the recovery, dayrates and multiples matter (we will return to midcycle eventually), the biggest question around most companies value is what will their fleet look like for the next cycle," Lewis wrote. Lewis added that the market is showing several "signs of distress." Specifically, the pending sale of the Deepsea Metro II appears to have garnered only one bid at $300 million, which the analyst argued is "well below" the estimated debt on the rig of $500 million. With that said, the market is poised to undergo more distressed sales which should see net asset values drop through pricing. Bottom line, Lewis argued that the sector "will get worse before getting better," however it will (eventually) get better.

Shares of

were maintained at Neutral with a price target lowered to $18 from a previous $24. Shares of

were maintained at Neutral with a price target lowered to $14 from a previous $18. Shares of

were maintained at Outperform with a price target lowered to $16 from a previous $18.