On Jan 4, Zacks Investment Research upgraded
Seadrill Partners LLC
) to a Zacks Rank #1 (Strong Buy).
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Why the Upgrade?
This offshore oil and natural gas drilling rig operator delivered
positive earnings surprises in the last three quarters with an
average beat of 105.56%. The long-term earnings growth of the
partnership is presently pegged at 9.0%.
The significant deep and ultra deep water discoveries have
prompted oil and natural gas exploration & production
companies to invest capital in deep and ultra-deepwater acreage.
Since the demand for rigs is strong, the prevailing day rates are
in the range of US$550,000 to US$650,000.
Seadrill Partners' current contracted dayrates range from
US$487,000 to US$580,000. Once the current contracts expire,
Seadrill Partners can look forward to enjoying higher rates.
Seadrill Partners recently issued 11.2 million of common units
and intends to utilize the net proceeds to fund its previously
announced acquisitions. The demand for rigs is expected to
increase from the present level, so the partnership's decision to
acquire additional rigs is well thought out.
We expect the initiatives undertaken by the partnership to
enhance its cash flow generation capability and increase its
distribution further from the present level.
The present valuation of the partnership in comparison to its
peers also makes it attractive. The P/B multiple of the
partnership is 0.77% reflecting a discount of 28.7% from its peer
group average of 1.08%. Return on Equity is 6.2%, substantially
higher than the peer group average of 2.9%.
The Zacks Consensus Estimate for 2013 increased 13.9% in the last
60 days to $1.80 per unit, reflecting an impressive
year-over-year increase of 519.54%. The Zacks Consensus Estimate
for 2014 increased 12.7% in the last 60 days to $2.22 per share,
reflecting year-over-year projected growth of 23.56%.
Other Stocks to Consider
Other players in the drilling rig industry, which also look
attractive at current levels, include
Pacific Drilling S.A.
). All these stocks carry the same Zacks Rank as Seadrill