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Diamond Offshore Drilling's Solid Fundamentals Impress

On Oct 1, 2015, we issued an updated research report on leading contract driller, Diamond Offshore Drilling Inc.DO .

Diamond Offshore Drilling boasts solid fundamentals with significant free cash flow potential and a clean balance sheet. This is expected to enhance the possibility of further share buybacks and/or special dividend payouts by the company in the years ahead.

The company aims to expand its footprint in emerging markets (such as Brazil, Australia and West Africa) to reap benefits from the recent discoveries of deepwater fields. Also, gradual improvement in the Gulf of Mexico drilling market (especially after the deepwater drilling ban was lifted), along with better bidding activity, will prove beneficial for contract drilling companies like Diamond Offshore Drilling.

Diamond Offshore Drilling remains committed to returning excess cash to shareholders through special dividends. Since the beginning of 2006, the company has regularly been paying special dividends in addition to its regular dividends. For the second quarter of 2015, the contract driller paid a regular dividend of $0.125 per share.

Diamond Offshore Drilling remains in good financial health and has a track record of disciplined capital outlays and financial conservatism. As of Jun 30, 2015, Diamond Offshore Drilling had approximately $95.9 million in cash and cash equivalents, while long-term debt totaled $1,994.6 million.

However, higher rig availability is a major concern in 2015 as the global floater market will likely be under considerable pressure through 2016. Therefore, the major operators are reducing spending extensively, postponing projects and reviewing their cost structure. Utilization concerns arise, in particular, about three floating rigs in North Sea and two rigs in South East Asia.

Moreover, Diamond Offshore Drilling relies heavily on the volume of capital expenditure from the exploration and production sector. Hence, the current volatility in oil and gas prices puts further pressure on its activity level.

Zacks Rank and Other Stocks

Diamond Offshore Drilling holds a Zacks Rank #2 (Buy). Other stocks from the same space that warrant a look are Alon USA Partners, LP ALDW , Braskem S.A. BAK and ReneSola Ltd SOL . All these stocks sport a Zacks Rank #1 (Strong Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

RENESOLA LT-ADR (SOL): Free Stock Analysis Report

DIAMOND OFFSHOR (DO): Free Stock Analysis Report

BRASKEM SA (BAK): Free Stock Analysis Report

ALON USA PTNRS (ALDW): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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