Canaccord Remains Bearish on Seadrill Ltd (SDRL) Following 3Q:15 Results; Here’s Why

In a research report issued Wednesday, Canaccord analyst Alex Brooks reiterated a Sell rating on shares of Seadrill Ltd (NYSE:SDRL), with a price target of NOK$35, after the company released its third-quarter financial results, missing on the sales and EPS lines, but posting EBITDA of $546 million that beat the consensus estimate of $507 million and the company’s guidance for EBITDA to fall $160 million sequentially to $491 million.

Brooks wrote, “Seadrill is changing course as fast as it can. Capex in 3Q has been cut aggressively, with newbuild capex receding out far over the horizon whatever the current newbuild schedule says, and maintenance capex cut to just 30% of depreciation. Operating costs continue to be hacked away at, with 3Q’s underlying EBITDA beat entirely attributable to much lower cash costs: it appears that Seadrill has been able to cut over 10% out of its cash costs in 3Q against 2Q, an impressive achievement.”

“The problem – and the core reason for our SELL – remains the essentially unpayable burden of debt built up in more bullish times. At end 3Q15 we estimate Seadrill Group (including Partners and SeaMex) had a net debt burden of $13.5bn at book value – with much of that debt short dated. Total revenue backlog is $12bn (as announced), and in the current market the rigs are worth little if anything at all – as demonstrated by the lack of transactions on rigs for sale and Seadrill’s own actions in cancelling the West Mira and most likely the West Rigel. Consequently we struggle to see how there is much value to Seadrill’s equity beyond at most an option on a distant recovery,” the analyst concluded.

According to, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Alex Brooks has a total average return of 19.3% and a 71.4% success rate. Brooks has a 43.3% average return when recommending SDRL, and is ranked #612 out of 3641 analysts.

Out of the 8 analysts polled by TipRanks, 1 rate Seadrill Ltd. stock a Buy, 2 rate the stock a Hold and 5 recommend Sell. With a return potential of 45.6%, the stock’s consensus target price stands at $9.


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