We reaffirmed our Neutral recommendation on
Rowan Companies plc
) on Jun 17, 2013. The company's premium high-specification rig
fleet enjoys greater utilization than most other shallow-water
fleets. However, the company's 2013 guidance of increased
expenditure remains a major concern.
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Rig owner, Rowan is advantageously positioned to benefit from the
growing demand in the global jackup market with the current
worldwide utilization of 86%. The ever-increasing tendering
activity has also increased the dayrates. It has eight contract
rollovers in 2013, which will further help in reducing the rig
downtime days and provide impetus for increased operations.
Rowan's deeper focus on high-spec resources, as well as impending
tendering activities for multi-year drilling programs in key
markets including the North Sea, Southeast Asia and Saudi Arabia,
are likely to support the requirement for high-spec units.
With its improved rig execution level, Rowan stands to benefit
from the upward trend in the high-spec jackup market and mining
equipment orders. Long-term growth drivers for Rowan include its
high quality fleet and strong relationships with operators.
Rowan has significant exposure to the ultra-deepwater market with
two uncontracted drillships that are under construction and
slated for deliveries starting late 2013 and through 2014.
Rowan's first ultra-deepwater drillship - Rowan Renaissance - was
contracted at a higher-than-expected dayrate. Currently, Rowan is
in pursuit of 19 opportunities for three of its uncontracted
newbuild drillships, with emphasis on receiving a multi-rig
package, within the 2014 contract window. Of the total, 4 are
However, as per the company's 2013 guidance, contract drilling
expenses are predicted to increase by 5% to 7%, while selling,
general and administrative expenses are likely to increase by 16%
from the last year. The interest expense is also expected to rise
due to the recent debt issue. As a result, Rowan's earnings will
most likely be affected when these higher costs are taken into
Other Stocks to Consider
While we prefer to remain on the sidelines for Chesapeake, there
are other Zacks Ranked #1 (Strong Buy) stocks -
Hornbech Offshore Services, Inc.
Newpark Resources Inc.
Gulfmark Offshore, Inc.
) - that are expected to perform impressively over the short