Offshore Drillers: Here We Go Again?

Go back a year, and offshore drillers like Noble (NE), Rowan (RDC), Transocean (RIG) and Atwood Oceanics (ATW) had been all but written off–until they weren’t anymore. Since then, investors have been rewarded for picking winners in the group from the losers, as Atwood Oceanics has more than doubled, Transocean has gained 34%, and Rowan has risen 42%, while Noble and Diamond Offshore Drilling (DO) have dropped 13%.

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But are the days of picking stocks among offshore drillers over? Consider: Today, Jefferies analyst Eduardo Royes and team upgraded Noble to Buy and cut Rowan to Hold, clearly favoring one over the other. They explain why:

Given where we sit in the cycle, we cannot favorably recommend the group. That said, we can still see relative value (or lack thereof) in shares. We upgrade Noble to Buy as we view it as the ‘safest’ way to play offshore drilling exposure at the moment we see modest upside to shares on a DCF and relative valuation basis. Meanwhile we downgrade Rowan to Hold as despite still generating healthy free cash flow, we see risk that medium-term earnings disappoint (we’re >30% below ’18 Street EBITDA) as the ‘turn’ in jackups and ultra-deep-water markets is likely challenged from a profitability standpoint. Outside of Rowan and Noble, we skew favorably to Hold-rated Ensco (ESV) and Transocean.

The market, however, sees little difference between the offshore drillers today: Yes, Rowan has dropped 6.5% to $18.02 at 2:06 p.m. today, but Noble has fallen 6.3% to $6.75. And Transocean has declined 0.3% to$13.96, Atwood Oceanics has slumped 7% to $12.30, Diamond Offshore Drilling has tumbled 6% to $16.26, and Ensco is off 7.3% at $10.55.

No rewards for stock picking today.

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