- Diamond Offshore (NYSE:DO) is upgraded to Market Perform from Underperform along with the overall offshore drilling segment at Wells Fargo to reflect valuations below net asset value and the potential for an underappreciated demand profile in a recovery scenario in 2017-18.
- But it is hardly a ringing endorsement, as the firm also cut its offshore drilling earnings estimates by 10%-40% for 2016 and 20%-60% for 2017 to primarily reflect likely 5%-15% reductions in floater dayrates and 10%-20% reductions in jack-up dayrates as well as updated idling/stacking assumptions across each fleet.
- For DO, the firm believes the downside risk for the company’s fleet is largely priced in, and that DO’s free cash flow and strong balance sheet relative to the industry suggests more of a neutral outlook than meaningful downside risk.
- Wells' move hardly helped today's stock results in the sector, which were sharply lower: DO -4.2%, RIG -3.5%, SDRL -6.3%, ESV -5.5%, NE -2.4%, ATW -4.5%, RDC -2.1%, ORIG -6.3%.
- At the same time, Wells downgraded land drillers Pioneer Energy (NYSE:PES), RPC Inc. (NYSE:RES) and Patterson-UTI (NASDAQ:PTEN) to Market Perform from Outperform.