Canaccord Genuity analyst Alex Brooks weighed in today with a cautious view on Seadrill Ltd (NYSE:SDRL), after the company reported first quarter earnings results, posting EPS of $0.75 compared to Brooks’ estimate of $0.62. The analyst reiterated a Sell rating on the stock, with a price target of NOK70, which represents a potential downside of nearly 27% from where the stock is currently trading.

Brooks noted, “There is little to cheer in the outlook, and Seadrill’s release is commendable for its honesty: the main customer conversations are “oil companies seek[ing] to renegotiate or cancel contracts,” and with so few new contracts available, “rig owners face a challenging market… against the limited work available.” Expectations are no longer for a turn in the market in 2016, but more likely in 2017 – which means earnings (which are a lagging indicator of rig market conditions) will trough most likely in 2018.”

Furthermore, “This grim outlook is common to the entire industry, but Seadrill has two features that distinguish it: first, it has the most modern fleet of the large-cap drillers, which is an unalloyed positive. As confirmed on the conference call, the large-scale scrapping of rigs currently in full swing will have only a limited impact on Seadrill’s fleet. Second, and less happily, it has an unusually aggressive approach to financing, which has enabled it to go from a start-up in 2005 to the world’s second largest deepwater fleet, largely through a strategy of short-term secured financing. In the current downturn, the need to refinance this debt has become the dominant feature of Seadrill’s cash flow.”

According to, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Alex Brooks has a total average return of -1.4% and a 50.0% success rate. Brooks has a 14.6% average return when recommending SDRL, and is ranked #2784 out of 3610 analysts.

SDRL Chart