Alert: Deutsche Bank Thinks HERO Is Worth $0

Deutsche Bank downgraded Hercules Offshore, Inc. HERO Friday from Buy to Sell and cut its price target from $4 to $0.

Analyst Mike Urban commented that the "offshore drilling market continues to deteriorate at an accelerating pace as evidenced by a recent wave of contract terminations including HERO's Rig 261."

Urban explained that demand had become "nearly non-existent" and, with more capacity entering the marketplace, any chance for a recovery was "bleak" in the near term.

Bankruptcy was not seen as a foregone conclusion because the company had assets upon which it can draw, but such a course would still burn cash and would eventually leave little to no equity, according to Urban.

The analyst stated that the firm had been relatively positive on HERO due to the "expectation that very few newbuilds would enter the shallow US GoM where HERO has a commanding market position," however, "the collapse in oil price has eviscerated demand, especially for older generation units like HERO's."

Urban changed the EPS (loss) estimates from $(1.53) to ($1.85) for 2015. For 2016, the estimates were changed from $(0.45) to $(0.70).

Upside risks included "a recovery in shallow water drilling demand in the Gulf of Mexico as well as less than expected newbuild supply growth," according to the analyst note.

Hercules Offshore recently traded at $0.60, down 17 percent.