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Seadrill Upgraded to Buy

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On Aug 31, Zacks Investment Research upgraded Norwegian oilfield service firm, Seadrill Ltd. (SDRL - Free Report) to a Zacks Rank #2 (Buy).

Why the Upgrade?

On Aug 28, Seadrill reported second quarter adjusted earnings of 69 cents per share, surpassing the Zacks Consensus Estimate of 61 cents by 13.1%. The earnings beat was primarily aided by a record net income and strong operating results. This reflects the company’s second consecutive earnings beat.

Total operating revenue of $1,268.0 million beat the Zacks Consensus Estimate of $1,147.0 million on the back of strong performance by the floater and jack-up rig segments.

The Hamilton, Bermuda-based company is ready to reap benefits from the strong ultra-deepwater market, en-cashing the high day-rates by establishing long-term contracts for its fleet. With 27 new rigs under construction (including 11 drillships and 2 harsh environment semi-submersibles), the future looks bright with high returns and growing revenues. Seadrill’s newer fleet gives it a competitive advantage.

The company’s dividend story also looks promising. Seadrill declared second quarter cash dividend of 91 cents, up 3 cents (or 2.64%) from the previous quarter figure. The dividend is payable on Sep 20. The company’s commitment to increase shareholder value is reflected in its consistent dividend increases.

All these positives are considered in the company’s long-term expected earnings growth of 23.46%. The Zacks Consensus Estimate for the third quarter has moved up 2 cents (or 2.9%) to 70 cents over the last 30 days. The Zacks Consensus Estimate for the full year is currently pegged at $3.42, after moving up 56 cents (or 19.6%) in the same time frame.

Other Stocks to Consider

In addition to Seadrill, certain other firms in the energy sector appear more attractive for the next one to three months. These include Magellan Midstream Partners LP (MMP - Free Report) , Seacor Holdings Inc. (CKH - Free Report) and Dril-Quip, Inc. (DRQ - Free Report) . All these stocks currently sport a Zacks Rank #1 (Strong Buy).

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