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SeaDrill (SDRL) to Report Q1 Earnings: What's in the Cards?

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International offshore drilling company SeaDrill Ltd. (SDRL - Free Report) is set to release first-quarter 2017 results before the opening bell on May 24.

In the last reported quarter, SeaDrill delivered a positive earnings surprise of 84.62% owing to decrease in the operating expenses. The company surpassed estimates in three of the last four quarters with an average positive surprise of 34.24%. Let’s see how things are shaping up for this announcement.

Seadrill Limited Price and Consensus

Factors at Play

SeaDrill is a leading offshore drilling contractor with one of the youngest and most advanced fleets. The company has high economic utilization for its floaters, which is expected to help it maintain a steady flow of income. Further, to withstand the downturn, the company is focused on aggressive cost cutting programs to maintain margins. SeaDrill witnessed 19% decline in costs in the previous quarter owing to reduced stacking and operating costs. The company has an impressive earnings surprise history.

However, lowered demand for offshore drilling activities due to weak oil prices is also likely to affect the company’s revenues. The drilling industry has been one of the worst sufferers of the downturn. The company did not sign any contract during the quarter. The SeaDrill’s backlog also declined to $2.5 billion as of Feb 28, 2017 as against $3 billion on Nov 16, 2016. Many of the offshore drillers like Transocean Ltd (RIG - Free Report) , Diamond Offshore Drilling (DO - Free Report) and Rowan Companies PLC have also seen their backlog fall.

During the quarter, SeaDrill’s stock price had plunged 52% underperforming the Zacks categorized Oil-Gas Drilling industry’s decline of 10%. Debt woes and bankruptcy fears are likely to hurt earnings. The company had also released a statement in April warning shareholders of significant losses they might face if it does not manage to get the restructuring right.

The company which hasn’t been able to secure any proper restructuring agreement till now, is concentrating on asset sales which are normally the last resort for companies grappling with bankruptcy and debt woes. SeaDrill recently sold its three jack ups for $225 million.A loss on disposal of $190 million in the transaction is expected to be realized in the first quarter. Moreover, the company’s weak financials- consisting of $1.4 billion in cash and $3.2 billion in debt, further lowers the company’s outlook.

Earnings Whispers

Our proven model does not conclusively show that SeaDrill will beat on estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -20.00%. This is because the Most Accurate estimate is pegged at a loss of 6 cents, which is wider than the Zacks Consensus Estimate of a loss of 5 cents.  You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: SeaDrill currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.

Please note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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Transocean Ltd. (RIG) - free report >>

Diamond Offshore Drilling, Inc. (DO) - free report >>

Seadrill Limited (SDRL) - free report >>