When an analyst upgrades a stock and that upgrade is accompanied by a recommendation with a long-term positive or negative outlook, the stock in focus may see a considerable increase or decrease in its share price within just a few minutes of that note. With that said, I wanted to focus on two energy stocks that were upgraded in the last 24 hours.
SeaDrill, Ltd. (SDRL) had its coverage upgraded by Natixis and Natixis Bleichroeder to a rating of "Hold" from a rating of "Reduce" at both firms. The Hamilton, Bermuda based firm provides offshore drilling services to the oil and gas industry worldwide. Its services include drilling, completion, and maintenance of offshore wells; production drilling and well maintenance; and well services. The company owns and operates a fleet of 59 offshore drilling units, which consist of 13 semi-submersible rigs, 9 drill ships, 21 jack-up rigs, and 16 tender rigs for operations in shallow, mid and deep water areas, and in benign and harsh environments.
There are two catalysts from a long-term perspective potential investors should consider. First, the company carries a current yield of 8.00% and an annual dividend of $3.28/share, which in my opinion is very attractive. It should be noted that the company has increased the dividend distribution in three of the last five quarters, which in my opinion is a clear sign of positive growth. The second thing to consider in terms of SDRL is the company's margins over the last 12 months and how those margins have outpaced the competition. SDRL has demonstrated profit margins of 23.22% and operating margins of 44.07% over the last 12 months, whereas direct competitor Noble Corp. (NE) had only managed to demonstrate profit margins of 17.57% and operating margins of 22.63% over the same 12 month period.
Potential investors should note that although SDRL was upgraded to a rating of "Hold," such elements as an impending tropical storm in the gulf of Mexico have weighed heavily on the stock and as a result shares are off just under 1.00% during today's intraday session.
Talisman Energy, Inc. (TLM) had its coverage upgraded by RBC Capital to a rating of "Outperform" from a rating of "Sector Perform" on August 27. The Calgary, Alberta, Canada based firm, an upstream oil and gas company, engages in the exploration, development, production, transportation and marketing of crude oil, natural gas and natural gas liquids. It primarily operates in North America, the North Sea and Southeast Asia.
There are two catalysts from a long-term perspective potential investors should consider when it comes to TLM. The first variable that should be considered is the company's profit and operating margins. Over the last 12 months the company has demonstrated a profit margin of 11.12% and an operating margin 12.49%, which is pretty good considering BP, plc (BP) had only managed to demonstrate a profit margin of 4.58% and an operating margin of 6.15%. The second thing to consider in terms of TLM is the percentage of shares currently held by the insiders, which stands at 6.01% and is much greater than the 0.35% held by the insiders at Valero Energy Corp (VLO).
Potential investors should note that although TLM was upgraded to a rating of "Outperform," shares are trading pretty flat during today's intraday session as the analyst firm Zack's still has concerns over the company's YME project currently operating off the shores of Norway.
Potential investors looking to establish a position in either SDRL or TLM should do so with a small- to moderate-sized position and add to that position as both dividend dates and earnings announcements approach. One of the secondary variables long-term investors should consider when it comes to both SDRL and TLM is the performance of some of the larger energy companies and how well such things as "Acts of Nature" and "Unrest" directly affect the price of oil.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.