In a research report published Wednesday, Canaccord analyst Alex Brooks reiterated a Sell rating on shares of SeaDrill LTD (NYSE:SDRL), while reducing the price target to NOK55 (from NOK70), as the challenges in the energy marketplace continue, leading to estimates reduction.
Brooks worte, “Last week’s second-quarter shows off both features: management are clear that the market they are in is, in the short to medium term, very challenging. Stacking and scrapping of both floaters and jackups are likely to continue well into 2016, with “a high likelihood that there will be limited, or no, growth in the marketed fleet between now and 2018.” This is consistent with management expecting day-rates to stay well below incentive rates for another three years.”
Furthermore, “Lower day-rates mean earnings cuts of 6%/14%/15% for 15/16/17E. With some strength in the oil price, Seadrill equity has been rallying along with the rest of the offshore drilling sector. We continue to believe this rally is premature. We see little prospect of a recovery in day-rates in the next 18 months, and a strong liklihood of the situation getting worse. Seadrill may yet survive without an equity issue thanks to further yard reschedules and support from its existing lenders but the margin for it to do so is still shrinking.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Alex Brooks has a total average return of 24.1% and a 90.9% success rate. Brooks has a 41.7% average return when recommending SDRL, and is ranked #606 out of 3742 analysts.
Out of the 13 analysts polled by TipRanks, 3 rate Seadrill Ltd. stock a Buy, 5 rate the stock a Hold and 5 recommend Sell. With a return potential of 170%, the stock’s consensus target price stands at $20.33.