Canaccord Bearish on Seadrill Ltd (SDRL) Ahead of 2Q:16 Results

A debt burden of $13 billion simply unsustainable, says Canaccord

Seadrill Ltd (NYSE:SDRL) is set to deliver second-quarter results on August 25th. Ahead of earnings, Canaccord analyst Alex Brooks reiterates a Sell rating on SDRL with a NOK1.00 price target.

The offshore drilling giant looks to be in a shaky position, predicted to close the quarter with debt, of which Brook anticipates of $13.5 billion, which includes both Partners and share of SeaMex, along with cash of $1.7 billion. Eerily similar to deepwater driller Ocean Rig, Brooks finds a debt burden of a colossal $13 billion to be “simply unsustainable.” While Seadrill has recently received three-year contract extensions from Saudi Aramco for the jack-ups AOD I and AOD II, which paired with tender rigs, Brooks believes will make contributions of “modest” free cash flow.

Brooks notes, “Like Ocean Rig, Seadrill has a relatively short-dated debt structure which requires frequent new debt raises. We understand Seadrill creditors are engaged in an active process to address the group’s capital structure, with advisers, and have been since May. The parallels to Ocean Rig are clear.”

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Alex Brooks is ranked #130 out of 4,124 analysts. Brooks has achieved a high 95% success rate and gains a considerable 41.8% in his annual returns. When recommending SDRL, Brooks earns 47.5% in average profits on the stock.

TipRanks analytics show SDRL as a Sell. Based on 4 analysts polled in the last 3 months by TipRanks, 1 maintains a Hold on SDRL, while 3 issue a Sell. The consensus price target stands at $1.90, marking a 30% downside from where the shares last closed.

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