Back to top

Analyst Blog

On Jan 4, Zacks Investment Research upgraded Seadrill Partners LLC (SDLP - Snapshot Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

This offshore oil and natural gas drilling rig operator delivered positive earnings surprises in the last three quarters with an average beat of 105.56%. The long-term earnings growth of the partnership is presently pegged at 9.0%.

The significant deep and ultra deep water discoveries have prompted oil and natural gas exploration & production companies to invest capital in deep and ultra-deepwater acreage. Since the demand for rigs is strong, the prevailing day rates are in the range of US$550,000 to US$650,000.

Seadrill Partners' current contracted dayrates range from US$487,000 to US$580,000. Once the current contracts expire, Seadrill Partners can look forward to enjoying higher rates.

Seadrill Partners recently issued 11.2 million of common units and intends to utilize the net proceeds to fund its previously announced acquisitions. The demand for rigs is expected to increase from the present level, so the partnership’s decision to acquire additional rigs is well thought out.

We expect the initiatives undertaken by the partnership to enhance its cash flow generation capability and increase its distribution further from the present level.

The present valuation of the partnership in comparison to its peers also makes it attractive. The P/B multiple of the partnership is 0.77% reflecting a discount of 28.7% from its peer group average of 1.08%. Return on Equity is 6.2%, substantially higher than the peer group average of 2.9%.

The Zacks Consensus Estimate for 2013 increased 13.9% in the last 60 days to $1.80 per unit, reflecting an impressive year-over-year increase of 519.54%. The Zacks Consensus Estimate for 2014 increased 12.7% in the last 60 days to $2.22 per share, reflecting year-over-year projected growth of 23.56%.  

Other Stocks to Consider

Other players in the drilling rig industry, which also look attractive at current levels, include Pacific Drilling S.A. (PACD - Snapshot Report), Tesco Corporation (TESO - Snapshot Report) and Transocean Ltd. (RIG - Analyst Report). All these stocks carry the same Zacks Rank as Seadrill Partners LLC.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
SUPER MICRO… SMCI 26.10 +6.57%
STRATTEC SE… STRT 85.29 +6.29%
CENTURY ALU… CENX 26.12 +4.56%
E COMMERCE… DANG 14.28 +3.18%
TESLA MOTOR… TSLA 277.67 +2.96%