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Diamond Offshore Drilling (DO) Down 4.5% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Diamond Offshore Drilling (DO - Free Report) . Shares have lost about 4.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Diamond Offshore Drilling due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Diamond Offshore’s Q3 Earnings Top Estimates, Rig Utilization Rises

Diamond Offshore incurred third-quarter 2019 adjusted loss of 67 cents per share, narrower than the Zacks Consensus Estimate by a penny. However, it was wider than the year-ago loss of 26 cents.

Moreover, total revenues amounted to $254 million, down from $286.3 million in the year-ago quarter. The figure beat the Zacks Consensus Estimate of $247 million.

The better-than-expected results were primarily aided by higher rig utilization, and the startup of Ocean Apex and Ocean Endeavor. The positives were partially offset by lower average day rates and higher operating expenses.

Operational Performance

In the quarter under review, the company began operations of two premier moored rigs, Ocean Apex and Ocean Endeavor, which boosted the results. Ocean Endeavor was brought back from cold-stacked state.

The rigs recorded an average day rate of $253,000, lower than $333,000 in the prior year. Operational efficiency in the reported quarter was 96.6% compared with 97% in the year-ago period. However, rig utilization jumped to 65% from 54% a year earlier.

In the third quarter, Contract Drilling revenues dropped 13.7% year over year to approximately $242.3 million.

Total operating expenses in the quarter were recorded at $326.9 million, higher than $304.4 million in the year-ago quarter, primarily due to higher contract drilling costs.

Backlog

Notably, as of Oct 1, 2019, the company had a total contracted backlog of $1.8 billion. It secured around $90 million of additional backlog in the quarter under review.

Financials

As of Sep 30, 2019, Diamond Offshore had approximately $209.1 million in cash and cash equivalents, while long-term debt totaled $1,975.3 million. The debt-to-capitalization ratio was 37.4%.

Guidance

For the fourth quarter, the firm anticipates contract drilling revenues in the range of $235-$245 million. Contract drilling expenses for the final quarter of 2019 is expected between $195 million and $205 million. G&A expense through the quarter is expected to be around $17 million.

Moreover, its capital budget guidance for the full year is estimated in the range of $360-$380 million. The figure is expected to significantly decline in the next year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -19.59% due to these changes.

VGM Scores

Currently, Diamond Offshore Drilling has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Diamond Offshore Drilling has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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