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Friday, March 29, 2024

Pacific Drilling, Seadrill Downgraded At Credit Suisse; Notes Drilling Recovery Delayed Until At Least 2018

Courtesy of Benzinga.

Pacific Drilling, Seadrill Downgraded At Credit Suisse; Notes Drilling Recovery Delayed Until At Least 2018

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In a report published Thursday, Credit Suisse analyst Gregory Lewis maintained an Underperform rating on the entire Offshore Drillers sector, while simultaneously downgrading Seadrill Ltd (NYSE: SDRL) to Underperform from Neutral (with a price target lowered to $5 from a previous $7) and Pacific Drilling SA (NYSE: PACD) to Neutral from Outperform (with a price target lowered to $3 from a previous $4).

Lewis said the Offshore Drilling sector will recover, but while bulls point towards a 2017 recovery, bears are pointing towards a recovery only starting early next decade. The analyst suggested a base case which is in the middle of the bull and bear timeline and expects a recovery to begin in 2018/2019.

"While the timing of the recovery, dayrates and multiples matter (we will return to midcycle eventually), the biggest question around most companies value is what will their fleet look like for the next cycle," Lewis wrote.

Related Link: Can Schlumberger Outperform The Market? Citi Thinks So

Lewis added that the market is showing several "signs of distress." Specifically, the pending sale of the Deepsea Metro II appears to have garnered only one bid at $300 million, which the analyst argued is "well below" the estimated debt on the rig of $500 million. With that said, the market is poised to undergo more distressed sales which should see net asset values drop through pricing.

Bottom line, Lewis argued that the sector "will get worse before getting better," however it will (eventually) get better.

Other Material Changes:

  • Shares of Atwood Oceanics, Inc. (NYSE: ATW) were maintained at Neutral with a price target lowered to $18 from a previous $24.
  • Shares of ENSCO PLC (NYSE: ESV) were maintained at Neutral with a price target lowered to $14 from a previous $18.
  • Shares of Noble Energy, Inc. (NYSE: NBL) were maintained at Outperform with a price target lowered to $16 from a previous $18.

Latest Ratings for SDRL

Date Firm Action From To
Sep 2015 Credit Suisse Downgrades Neutral Underperform
Aug 2015 Global Hunter Maintains Accumulate
Aug 2015 Scotia Howard Weil

View More Analyst Ratings for SDRL
View the Latest Analyst Ratings

Posted-In: Credit Suisse Gregory Lewis offshore drillersAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

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