Deutsche Bank Comments On Seadrill Following Dividend Suspension; Slashes Price Target
In a research report sent to investors today, Deutsche Bank analyst Mike Urban maintained a Hold rating on shares of SeaDrill (NYSE:SDRL) and reduced his price target $17 (from $32), following the company’s decision to suspend its $1.9 billion ($4.00 /sh) annual dividend.
Urban noted, “We see SDRL’s decision as prudent given our view that the deteriorating operating environment will last longer than most suspect. While the dividend cut and deferral of newbuild deliveries have put SDRL on a more sustainable path, we remain concerned about SDRL’s un-contracted newbuilds and exposure to the rapidly deteriorating harsh environment market. While the sharp recent selloff in SDRL shares may pique some interest, recent commodity price weakness seems likely to put further pressure on the shallow water market and the balance sheet remains highly leveraged.”
The analyst explained his new price target, “We are assuming contracts in Russia will be canceled and a higher cost of capital given the dividend cut and deterioration in the driller MLP market. This causes our target price to decline to $17 from $32. Our target price is based on a discounted cash flow of SDRL’s contracted and un-contracted cash flows, net of CAPEX requirements and net debt (WACC 6.0%).”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Mike Urban has a total average return of -4.3% and a 41.8% success rate. Urban is ranked #3079 out of 3410 analysts.