On Mar 13, 2014, we issued an updated research report on
Rowan Companies plc
). The company posted fourth quarter 2013 earnings from
continuing operations of 42 cents per share, at par with the
Zacks Consensus Estimate. Quarterly earnings, however, decreased
from the adjusted year-ago profit level of 44 cents.
Total revenue grew 11.1% year over year to $393.4 million in
the fourth quarter and beat our expectation of $388.0 million.
The growth was mainly attributable to higher average dayrates,
increased activity from fleet additions and higher utilization of
existing rigs between periods.
Rowan's premium high-specification rig fleet enjoys greater
utilization than most other shallow-water fleet. The growing
demand in the global jackup market with the current fleet-wide
utilization of 83% and operating utilization of 91% signifies the
ever-increasing tendering activity that has increased the
Rowan is positioned advantageously with its several contract
rollovers in 2013. The contracts on these rollovers will further
help the company in reducing the rig downtime days and provide
impetus for increased operations.
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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, Australia and
Saudi Arabia, are likely to support the requirement for high-spec
However, going forward, contract drilling expenses are predicted
to increase 5% to 7%, while selling, general and administrative
expenses are likely to increase 16% from 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 adversely affected
when these higher expected costs are taken into account.
Key Picks from the Sector
Rowan Companies currently retains a Zacks Rank #3 (Hold),
implying that it is expected to perform in line with the broader
U.S. equity market over the next one to three months.
Meanwhile, one can consider better-ranked players in the energy
Range Resources Corp.
Patterson-UTI Energy Inc.
Helmerich & Payne, Inc.
). All the stocks sport a Zacks Rank #1 (Strong Buy).