Rowan Maintained at Neutral - Analyst Blog
28 Marzo 2013 - 7:00PM
Zacks
We maintained our recommendation on
Rowan Companies plc (RDC) at Neutral on Mar 15,
2013. The company, with its improved rig execution level, stands to
benefit from the upward trend in the high-spec ultra-deepwater as
well as jackup market and mining equipment orders. However, Rowan’s
2013 guidance of increased costs is a major hindrance to its
earnings growth.
Why Maintained?
Rowan, a provider of international and domestic contract drilling
and aviation services, and premium high-specification rig fleet
enjoys greater utilization than most other shallow-water
fleets.
Rowan’s recent fleet status comprises three new contracts with one
in the Middle East and two in the GoM. Among these, Rowan
California was awarded a three-year contract by Maersk, jackup EXL
III received a two-month contract with Nexen in the GoM, while
Rowan Louisiana received a three-month contract, to be employed in
the GoM. These contracts received higher dayrates from its previous
contracts and will help the company in reducing the rig downtime
days and provide impetus for increased operations.
The company has significant exposure to the ultra-deepwater market
with three uncontracted drillships that are under construction and
slated for deliveries starting late 2013 and through 2014. Rowan’s
first ultra-deepwater drillship – Rowan Renaissance – was
contracted by Repsol for a period of three years, at dayrates that
beat market expectations. Currently, Rowan is pursuing active
requirements for 22 ultra-deepwater units with emphasis on
receiving a multi-rig package.
Rowan’s deeper focus on high-spec resources, as well as impending
tendering activities for multi-year drilling programs in key
markets including the North Sea, Southeast Asia and Saudi Arabia,
are likely to support the requirement for high-spec units.
Long-term growth drivers for Rowan include its high quality fleet
and strong relationships with operators.
However, Rowan sees shipyard time in 2013 to increase to around 10%
of available days. The company also expects contract drilling
expenses to increase by 5% to 7%, while selling, general and
administrative expenses to increase by 16% from the last year. The
interest expense is also expected to creep up due to the recent
debt issue. These factors are likely to have a negative impact on
the company’s revenue and investor sentiment.
Other Stocks to Consider
While we prefer to remain on the sidelines for Rowan, there are
other stocks in the sector that appear rewarding. Among these,
Stone Energy Corporation (SGY), Range
Resources Corporation (RRC) and EPL Oil & Gas,
Inc. (EPL), are expected to perform impressively over the
next few months, and carry a Zacks Rank #1 (Strong Buy).
EPL OIL&GAS INC (EPL): Free Stock Analysis Report
ROWAN COS PLC (RDC): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis Report
STONE ENERGY CP (SGY): Free Stock Analysis Report
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