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Will SeaDrill (SDRL) Beat Q1 Earnings on Robust Backlog?

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Offshore contract driller SeaDrill Limited (SDRL - Free Report) is expected to release first-quarter 2016 results on Thursday, May 26.

In the preceding three-month period, the company reported a positive earnings surprise of 20.00%. Going by the earnings surprise history, SeaDrill beat estimates in three of the last four quarters with a positive average surprise of 8.97%.

Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that SeaDrill is likely to beat earnings in the to-be-reported quarter because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP for SeaDrill stands at +7.90%. This is because the Most Accurate estimate stands at 41 cents, whereas the Zacks Consensus Estimate is pegged lower at 38 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: SeaDrill carries a Zacks Rank #3 (Hold). The combination of the company’s favorable Zacks Rank with a positive ESP makes us confident of an earnings beat.

Note that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. On the other hand, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.  

What's Driving the Better-Than-Expected Earnings?

SeaDrill has a robust portfolio of modern fleet with new equipment that commands higher rates than its peers. The company also boasts a strong backlog of $5.1 billion. This not only reflects steady demand from its customers but also offers an unmatched level of earnings and cash flow visibility.

Notably, the company’s key revenue generator, its floater fleet, has more than 70% of the rigs are under contract through 2016. This is expected to provide SeaDrill with a steady flow of income despite the volatile commodity pricing environment.

Also, SeaDrill has high economic utilization for its floaters. During fourth-quarter 2015, the economic utilization for the company’s floaters and jackups were 91% and 96%, respectively. This helped the company maintain a steady flow of income. We expect the trend to continue in the quarter to be reported.

Stocks to Consider

SeaDrill is not the only company looking up this earnings season. Here are some companies from the energy space which, according to our model, also have the right combination of elements to post an earnings beat this quarter:

North Atlantic Drilling Limited has an Earnings ESP of + 22.58% and a Zacks Rank #3. The partnership is expected to release earnings on May 26.

NGL Energy Partners LP (NGL - Free Report) has an Earnings ESP of +13.04% and a Zacks Rank #2. The company is scheduled to release earnings on Jun 6.  

Trina Solar Limited (TSL - Free Report) has an Earnings ESP of +43.48% and a Zacks Rank #3. The company is scheduled to release earnings on May 26.   

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