We reaffirmed our Neutral recommendation on
) on Jan 31, 2013, reflecting its commitment to modernize its
fleet, accompanied by revenue efficiency through lower fleet
downtime. The company holds a Zacks Rank #3, which is equivalent
to a short-term Hold rating.
The rig contractor is likely to continue making profits from the
high demand in the ultra-deepwater market. Many of its
semisubmersibles were contracted at higher dayrates. The
drillships Noble Don Taylor, Noble Globetrotter II, Noble Bob
Douglas, the Noble Sam Croft and another newbuild were contracted
The international jackup market is expected to witness
incremental demand in the Middle East (Saudi Arabia and
throughout Asia), the North Sea and West Africa. We expect
additional reactivations for piled jackups, particularly in the
Middle East, West Africa, and Asia, based on the current demand
Noble's earnings and cash flow visibility can be viewed from the
company's strong backlog position ($14.3 billion), which is
expected to increase in the near to medium term.
Currently, the company's expansion includes 5 ultra deepwater
drillships and 6 jackups under construction, with deliveries
expected through 2015. These are likely to be accretive to
earnings over the next three years as the company looks to lock
these in term contracts at higher dayrates.
However, Noble's fourth quarter profits, announced on Jan 23,
2013, were adversely affected by the extended downtime on various
newbuilds added in the ultra-deepwater and deepwater rigs as a
result of considerable enhancement and maintenance programs. The
company's initial operations on 5 high-end drilling ships were
lower than expected due to some critical mechanism. The 5 rigs
accounted for 33% of the company's downtime during the fourth
Other Stocks to Consider
While we prefer to remain on the sidelines for Noble, there are
other stocks in the sector that appear rewarding. These include
Helmerich & Payne, Inc.
Vantage Drilling Company
Patterson-UTI Energy Inc.
), which are expected to perform impressively over the next few
months and carry a Zacks Rank #2 (Buy).
HELMERICH&PAYNE (HP): Free Stock Analysis
NOBLE CORP (NE): Free Stock Analysis Report
VANTAGE DRILLNG (VTG): Free Stock Analysis
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