Credit Suisse analysts have downgraded offshore drilling
contractor Ocean Rig UDW Inc. (
) to a Neutral rating from Outperform, while lowering the price
target on the stock to $19 from $20 a share.
Cash Distributions? Not This Year
"We are downgrading ORIG to Neutral (from Outperform) and
lowering our target price to $19 (from $20). While we believe
management remains committed to returning cash to shareholders
through a dividend (or potentially a MLP), we expect cash
distributions to be a 2014 event at the earliest (not 2013)," said
Credit Suisse. "With 10% upside to our target price, we believe
ORIGs upside/downside is 1:1 - pointing to near-term dead
Nice Run. ORIG Up 15% YTD
"We believe the outperformance has been driven by a combination
of ORIG's asset base (pure play UDW operator) and investor
expectations of cash distributions. We expect Debt to EBITDA to
average about 9x in back half of 2013 (not conducive for cash
distributions) - but note Debt to EBITDA drops to ~4x in the back
half of 2014.
"Looking at ORIG's most restrictive debt covenant (50% of
previous Calendar Year net income payable as a dividend) - our
estimate of $34M in net income in 2013 points to $17M in dividends
- or ~$0.10 annually (0.6% yield) in 2014."
Another DRYS Sale Likely
"Another catalyst (negative) that we are expecting sooner rather
than later is another sale by DRYS of its ORIG stake. Earlier this
year DRYS sold 7.5M shares, dropping its ownership to 59.4% (from
65%). DRYS has already pledged 17M shares to its lenders and has
61M available. We see a funding gap for DRYS starting mid-2013,
which could result in further ORIG share sales - (ORIG traded down
~7% after the February sale)."
Lowering Target Price To $19
"Our $19 target price is based on a DCF analysis and points to
7x our 2014 EBITDA estimate of ~$850M (Consensus $880M). We
estimate ORIG's NAV at $18 (based on $660M/rig) - all of ORIG's
floaters are single BOPs. Our $19 target price points to about 10%
upside to ORIGs NAV. We are raising our 2013/2014/2015 EPS
estimates to $0.23/$1.50/$1.93 (from $0.21/$1.48/$1.92)
Shares of ORIG are down 2.63% to $16.66 in afternoon trade,
within a 52-week range of $12.14 - $18.43.
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