BMO foresees better times ahead for offshore drilling stocks

|By:, SA News Editor

Offshore drillers have been pounded YTD, but BMO Capital says its time at least to become less bearish as it upgrades shares of Transocean (RIG -1%), Seadrill (SDRL -0.8%), Diamond Offshore (DO +0.1%), Ensco (ESV -0.1%), Noble (NBL -1.2%), Rowan (RDC -0.1%) and Atwood Oceanics (ATW +0.3%) to Market Perform from Underperform.

BMO believes the stocks largely discount the weakness expected in the industry in 2014-15 with consensus estimates now reflecting the anticipated level of dayrate reductions, and the potential for a surprise demand uptick now outweighs already priced-in risks of further weakening.

The firm expects investors to focus on NBL’s upcoming spinoff of its commodity assets, which it says makes sense strategically but with a “challenging" valuation, on SDRL’s dividend, and on RIG’s fleet status and the valuation of its MLP.