U.S. crude is currently trading over 5 percent lower around $27, sending oil stocks spiraling downward. Among the equities in focus are solar energy company Sunedison Inc (NYSE:SUNE) and oil services company Seadrill Ltd (NYSE:SDRL). Let’s take a look and see what the analysts have to say about SUNE and SDRL.
While shares of Sunedison slumped 22% in the last two days, UBS analyst Julien Dumoulin Smith added further fuel to the fire, reiterating a Sell rating on the stock.
Smith wrote, “With the immediate liquidity issues addressed as part of the ~$500 Mn in net proceeds raised from recent second-lien issuance, the questions turn back to the contact execution.” Moreover, “We continue to focus our questions on the story on updates around quantum of backlog, MWs developed in 2016, and margins garnered.”
“We are shifting our methodology to reflect a new downside tied to further debt-for-equity exchanges. We assume all debt is eventually converted as present equity valuation as an interim. We expect further swaps will prove a continuous effort to bring down both interest expense as well continue to convey confidence in the equity valuation. We wouldn’t doubt a share reverse stock split in tandem,” the analyst added.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Julien Dumoulin Smith has a yearly average return of 1.7% and a 52.5% success rate. Smith has a 24% average return when recommending SUNE, and is ranked #1236 out of 3580 analysts.
Out of the 16 analysts polled by TipRanks, 12 rate SunEdison stock a Buy, 3 rate the stock a Hold and 1 recommends a Sell. With a return potential of 565.5%, the stock’s consensus target price stands at $13.91.
In addition, Canaccord analyst Alex Brooks reiterated a Sell rating on shares of SeaDrill, with a price target of NOK1.00, after the company announced that it has deferred its investment in two further newbuilds, the West Aquila and West Libra, under construction at DSME.
Brooks observed, “Because we assume that the deepwater units come to market at c.$200k day-rates – a free cash positive rate – the deferral of the Aquila and Libra has a negative impact on our forecast earnings but a positive impact on balance sheet stress and interest costs. This reduction in cash outgoings is material, pushing over $0.8bn in capex into 2018/9, and does help. However, we continue to believe that Seadrill will punch through all realistic covenants – even if rewritten – in 2017 at the latest, and potentially by the end of 2016, with peak net debt : EBITDA reaching 7.3x. This is not likely to be consistent with any value remaining to equity holders.”
The analyst continued, “For Seadrill, there are still many ways in which problems can surface. Dalian may prove more difficult regarding the renegotiation of the 8 new jackups that are due for delivery in the next 18 months. Any of the lending banks may decide – or be forced to recognize – that they are better off trying to recover value in a restructuring than awaiting a (very) distant recovery. A customer may have its own cash flow difficulties and cease making timely payments. An operating problem may arise with one or more of the high-value units – the ones that are generating over $10mn in free cash flow monthly for Seadrill, on existing legacy contracts – attributable to Seadrill and not readily resolved.”
According to TipRanks.com, analyst Alex Brooks has a yearly average return of 57.8% and a 100% success rate. Brooks has a 77.2% average return when recommending SDRL, and is ranked #42 out of 3580 analysts.