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Morgan Stanley On Seadrill's Q4, Brazil 'Particularly Tricky'

Courtesy of Benzinga.

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Morgan Stanley commented on Q4 earnings results for Seadrill Ltd (NYSE: SDRL) Thursday and maintained an Overweight rating.

Analysts Ole Slorer and Jacob Ng observed that the company's Q4 adjusted EPS of $0.72 was ahead of the consensus estimate of $0.63 and the Morgan Stanley estimate of $0.59.

$672 million in Q4 operating EBITDA also beat Street expectations of $637 million and the firm's estimate of $605 million. Seadrill "delivered strong revenue efficiency" and opex was in line with expectations, according to Slorer.

The analysts highlighted that the market outlook was "depressed" and that "contractors are focusing on utilization over returns and competitively bidding dayrates [less than or equal to] cash break-even" levels.

"Accelerating fleet attrition is nevertheless a mitigating factor" and the company did "not believe that current valuations are yet at a level that justifies M&A," according to the analyst note.

Brazil was viewed as "particularly tricky" due to concerns that Sete scrutiny was growing and Seadrill was the only publicly traded driller Morgan Stanley covered that had exposure, although the analysts estimated this to be "just ~$40 million (30 percent equity stake in 3 x $900 million new-builds after 85 percent debt financing)."

The analysts were positive on the company's efforts to fill its funding gap by cutting the dividend, which allowed it to retain $2 billion per year, along with $250 million gained from cost cutting initiatives.

While the company did not buyback any shares in Q4, John Fredriksen increased his stake by 4 million shares at an average price of $12.16 per share. Fredriksen owned 24.15 percent of the company by the end of Q4, according to Slorer.

Seadrill recently traded at $11.69, down 0.51 percent.

Latest Ratings for SDRL

Date Firm Action From To
Dec 2014 Goldman Sachs Downgrades Neutral Sell
Dec 2014 Deutsche Bank Maintains Hold
Nov 2014 Credit Suisse Maintains Neutral

View More Analyst Ratings for SDRL
View the Latest Analyst Ratings

Posted-In: Jacob Ng John Fredriksen Morgan Stanley Ole SlorerAnalyst Color Analyst Ratings

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