Canaccord Highlights Key Lingering Risk for Seadrill Ltd (SDRL) Following Q2 Results

Morgan Stanley analyst Ole Slorer is out with earnings commentary on shares of Seadrill Ltd (NYSE:SDRL) after the offshore drilling giant posted second-quarter results last week.

In light of a distribution cut last month, Slorer sees results with “a more sustainable payout at an attractive ~10% yield.” However, the analyst notes, “We nevertheless highlight lingering headline risk around West Leo’s contract integrity.”

The analyst explains further, “Our channel checks suggest this border dispute could form the basis on which Tullow declares force majeure on West Leo’s contract. We also note that Tullow has alluded to its 2017/18 Capex guidance excluding “onerous rig contracts”. We thus model for the rig to remain under contract only until year-end.”

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As such, Slorer reiterates an Equal Weight rating on shares of SDRL with a $7.50 price target, which represents a 191% increase from where the stock is currently trading.

SDRL’s adjusted EBITDA of $285mm topped Slorer’s projection of $234mm. Total revenues of $419mm came in strongly above Slorer’s estimate of $381mm. Cash flow of $99mm outclassed the analyst’s projection of $70mm. Guided adjusted EBITDA for third-quarter is of $290mm.

According to TipRanks, three-star analyst Ole Slorer is ranked #1,753 out of 4,127 analysts. Slorer has a 59% success rate and yields 1.0% in his annual returns. However, when recommending SDRL, Slorer faces a loss of 72.0% in average profits on the stock.

TipRanks analytics demonstrate SDRL as a Sell. 100% of analysts polled in the last 3 months rate Sell on SDRL. The consensus price target stands at $1.70, marking a 34% downside from where the shares last closed.


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