Argus analyst David Coleman downgraded Noble Corporation Ordinary Shares (UK) (NYSE: NE) shares to a Hold Rating from Buy, citing a weak outlook. The analyst believes that while the company should continue to gain from its fleet of high-spec rigs, he sees a further drop in offshore drilling activity as pressurizing. He also cited the loss of the big drilling contract with Freeport-McMoRan Inc (NYSE: FCX) representing 11 percent of its backlog.

The brokerage believes Noble shares are fully priced at current levels, as there are no positive catalysts ahead and Q1 results came in below consensus.

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The Argus analyst said Noble outperformed in the quarter, gaining 21.2 percent compared to the S&P 500's gain of 8.9 percent. However, shares have dropped 46.1 percent over the past year. Noble has also underperformed the energy industry ETF (iShares Dow Jones US Energy Sector (ETF) (NYSE: IYE)) over the trailing one- and five-year periods.

According to Coleman, Noble's top line was fueled by utilization and day rates. The first quarter witnessed total average fleet utilization of 79 percent, down from 86 percent a year ago.

The analyst said, "We are lowering our 2016 EPS estimate to $0.61 from $0.89, reflecting continued energy sector weakness and the substantial downturn in drilling activity. We are widening our 2017 loss estimate to $0.42 from $0.11 per share, which assumes further deterioration in energy industry fundamentals next year. The 2016 consensus EPS estimate is $0.62 and the 2017 consensus loss forecast is $0.53 per share."

He continued, "As Noble winds down its newbuild program, it should begin to generate higher free cash flow. (The company took delivery of 11 rigs in 2013 and 2014, and expects one additional rig to be delivered in 2016.) Over the last three years, NE's annual capital spending has averaged $2.1 billion. However, management expects capex of $800 million in 2016, including the $461 million to be paid on delivery of the final rig, which is scheduled for 3Q16."