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After announcing a $4 per share special dividend in January, SINLetter pick Diamond Offshore Drilling (NYSE:DO) announced fourth quarter 2006 results today that totally blew away analyst estimates. The company reported earnings of $1.60 per share, well above analyst estimates of $1.37 per share and more than double what it earned in the same quarter last year. Fourth quarter revenue jumped 57% to $578.2 million from $368.32 million last year. Full year 2006 results were even more impressive with earnings rising 171.5% to $706.8 million and revenue increasing 68% to $2.05 billion.

As mentioned in the February 2007 edition of SINLetter, deep water drilling remains profitable if the price of crude oil stays above $30 per barrel. With the price of crude oil close to $60 a barrel, increasing utilization rates for its rigs and a huge deep water oil discovery last year, I see additional upside potential for this company that trades at a forward P/E of 9.86. The stock appreciated more than 3.6% in response to fourth quarter earnings and is now registering a gain of about 14% in the SINLetter model portfolio.

DO 1-yr chart:

DO 1-yr chart

Source: Diamond Offshore Drilling: Despite Gains, Upside Remains