Diamond Offshore Way Oversold

Diamond Offshore Drilling, Inc. (DO) posted solid 4th-quarter 2008 results, reflecting more than 36% year-over-year increase in drilling revenue on the back of continued dayrate gains. Net income and operating cash flow increased nearly 55% and 34%, respectively, in 2008.

The company's $10.3 billion backlog provides for a very high level of earnings and cash flow visibility. We expect significant free cash flows, both this year and next. Management has established quite a track record in returning excess cash to shareholders through regular special dividends.

Though we have lowered our estimates to reflect a softer outlook for the jackup fleet, our Buy recommendation and target price remain unchanged. Our current target price is $100 per share.

Read the full analyst report on DO