Analysts weigh in on oil and gas rig maker Seadrill Ltd (NYSE:SDRL) and American solar firm First Solar, Inc.(NASDAQ:FSLR), offering compelling reasons for their ratings and summarizing expectations. While one analyst believes the value to equity holders of current shares in Seadrill is likely to be very low, the other is cautiously optimistic on shares of First Solar.
In a research report issued Thursday, Canaccord analyst Alex Brooks reiterated a Sell rating on shares of SeaDrill, with a price target of NOK1.00, after the company announced a “contract extension” for its drillship, the West Tellus, sending shares nearly 10% down yesterday.
Brooks commented, “Seadrill yesterday announced one of the most alarming contract changes we have yet seen in the deepwater drilling industry: on the West Tellus, a 2013 build ultra-deepwater unit, Petrobras is getting an incremental 18 months of hire for an incremental $32mn. Whether this is described as a discount on existing rates, thereby highlighting again the lack of contract protection for drillers in Brazil, or as an incremental $60k day-rate for a state-of-the-art deepwater rig, this is a disappointing rate.”
“$60k/day as a customer rate may look irrational, as it is likely to result in cash losses of over $60k/day: but if the alternative is stacking the vessel at a cost of c.$50k/day, with the possibility of impairing the ability of the unit to secure work in the future, the decision may become more nuanced. We don’t see rigs being brought out of warm- or cold-stacking for this kind of rate, but further contracts with such “incremental” rates are not only credible, but appear likely. The implications for the rest of Seadrill’s fleet, and the industry, are not good,” the analyst continued.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Alex Brooks is a top 100 analyst, with a yearly average return of 46.6% and a 94% success rate. Brooks has a 52.6% average return when recommending SDRL, and is ranked #91 out of 3809 analysts.
First Solar, Inc.
UBS analyst Julien Dumoulin Smith reiterated a Neutral rating on shares of First Solar, with a price target of $67, ahead of the company’s Analyst Day on Tuesday, April 5, 2016.
The analyst said, “With the Street bidding prices up after 4Q results already, we expect little further appreciation into the Analyst Day without clarity on forward looking guidance. Following the Supreme Court stay of CPP earlier this year, the question remains how firm new orders will be for the US in 2017 and 2018; we suspect the Southeast to play an integral role in discussion of the ‘evolving’ US strategy. Our PT remains derived via an EV/EBITDA-derived SOP of $67; with the multiple on shares largely ‘maxed’ out vs. peers, we see further improvement as based on positive estimate revisions.”
According to TipRanks.com, analyst Julien Dumoulin Smith has a total average return of 4.6% and a 57% success rate. Smith has a average return when recommending FSLR, and is ranked #799 out of 3809 analysts.