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SeaDrill Limited Goes Red

SeaDrill Limited (NYSE: SDRL  ) reported earnings on Feb. 29. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q4), SeaDrill Limited beat slightly on revenues and missed expectations on earnings per share.

Compared to the prior-year quarter, revenue shrank and GAAP earnings per share dropped to a loss.

Gross margins increased, operating margins improved, net margins dropped.

Revenue details
SeaDrill Limited reported revenue of $1.06 billion. The 20 analysts polled by S&P Capital IQ expected a top line of $1.04 billion on the same basis. GAAP reported sales were 6.8% lower than the prior-year quarter's $1.12 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at -$0.23. The nine earnings estimates compiled by S&P Capital IQ predicted $0.71 per share. GAAP EPS were -$0.23 for Q4 compared to $0.42 per share for the prior-year quarter.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 61.0%, 370 basis points better than the prior-year quarter. Operating margin was 42.3%, 210 basis points better than the prior-year quarter. Net margin was -10.5%, 3,320 basis points worse than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $1.05 billion. On the bottom line, the average EPS estimate is $0.73.

Next year's average estimate for revenue is $4.48 billion. The average EPS estimate is $3.20.

Investor sentiment
The stock has a five-star rating (out of five) at Motley Fool CAPS, with 670 members out of 674 rating the stock outperform, and six members rating it underperform. Among 145 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 143 give SeaDrill Limited a green thumbs-up, and two give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on SeaDrill Limited is hold, with an average price target of $38.70.

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Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings here. He is co-advisor of Motley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. Motley Fool newsletter services have recommended buying shares of SeaDrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On March 05, 2012, at 11:24 AM, farfetched1 wrote:

    What's In An Announcement? Downgrades-Upgrades - SeaDrill LTD On "Seller Put Option"

    We could start this article with news putting golfing legend Tiger Woods back in the spot light. The spotlight was on Tiger Woods almost pulling off winning the Honda Classic. Tiger Woods made his rush to try to come within just 2 stokes of Rory Mcllroy, who is considered now the top PGA golfer worldwide, when he coveted the win just this weekend at the PGA National in Palm Beach County, Florida.

    No different when watching stock issues, which remains important; especially in pre-market and after-hour markets? I am sure anyone would love to be given a winning Lotto ticket or be top dog as Rory Mcllroy.

    In this past week of pre-market and after-market trading, NYSE: SDRL gave just what most would hope to win, a chance to make great gains upon a downgrade March 2, 2012 and an insider event on February 29, 2012, though you must read closer in to if they are still bearish or bullish announcements, as we have taken the time to review.

    Out of Dow Jones news wire by London, HSBC downgraded SeaDrill (SDRL) to neutral from overweight, as the company is "reaching maximum drill depth. HSBC "Says the risk/reward ratio is more balanced, although it increases the target price, adding that consistent dividend yields limit downside to the stock. HSBC Says, "rig rates and new build economics continue to improve and that a "presalt urgency" could spike the ultra-deep markets in the short term, but that a new build wave is likely to kick off soon."

    We still have price models giving targets of mid 50s to low 60s forward looking 6-12 month period, with a healthy dividend projected increase, and potential share buyback history usually by the corporation in the coming June or September quarters 2012.

    THE PRIZE - SeaDrill LTD

    The world's stage of tensions control economic welfare developed nation's signals oil need, and SeaDrill is one of only a few companies that can retrieve it from beneath the ocean floor. Iran and all of the world keeps the pressure avert any further conflicts interrupting oil supplies.

    For many reasons, this becomes part of the equation securing another 4 year term for the incumbent or opens the door for the republican challenger. It further seems this may not be in the cards under the current administration and causes possibly, President Barack Obama to fall deeply to re-election hopes due to $5 - $6 dollar gas prices to be paid at the pump. Bring in the Healthcare Reform, austerity economics, and you have opened up Pandora's box for both parties.

    This is the time you will see Republicans and Democratic candidates needing to pull out all the stops; even after this presidential election is over.

    Some of the biggest answers to the immediate energy problem come through the Oil Drillers. Until either party can secure energy concerns moving forward, with cost at the pump back to pre-president Bush $2.95 a gallon, all bets are off. Oil Drillers seem to be a better hedge than Gold at this point of the 2012 - 2013 game.

    What makes SeaDrill a prospected stock pick comes on the heal of strong announcements like;

    [Dow Jones News Wire]

    SeaDrill Repurchases 350K of Co.'s Own Common Stocks At Average Price Of NOK185.15/Share

    Dated announcement May 11, 2011, which brings in the picture, the board of directors and company management tend to be shareholder friendly. We found the most recent dividend increase, as we believe from .76 to .80 cents a share, extremely reassuring of further shareholder respect given by their most recent announcement.

    Peeling the (SDRL) onion reveals there are over 18 Exchange Traded Funds ETFs, 11 Close End Funds CEFs, and 25 Mutual funds comprising the institutional support for (SDRL).

    Looking further in to SeaDrill's earnings per share; they have grown at an impressive annualized rate of 218.93% in the last two years. The combination of such a high growth rate with an apparent margin expansion probably means the company has been gaining market share in recent quarters without sacrificing financial performance, evidenced by its superior overall Profitability. This combination offers a strong case for future gains in the stock price. Currently the stock also has a forward P/E of 12.70, which interestingly enough is higher than its trailing P/E but lower than the S&P 500's forward P/E of 15.20.

    SeaDrill's current market value is 3.86 times its tangible book value, which excludes intangible assets such as goodwill; this valuation seems attractive, especially considering that only 20.49% of the company's total stockholders' equity is based on intangible assets. When the value of those assets is added back into total book value, the price to book ratio is an even lower 3.07. Relative to the $3.62 in cash flow per share generated by the company in the last twelve months, the stock is attractively priced at 11.23 times cash flow per share considering its strengths across our fundamental indicators.

    It bodes well for SeaDrill moving ahead, as they are able to pull in higher rental rates, making for a very profitable company with strong overall indicators. While this most current earnings report showed a decline is obviously not a positive near term sign, but the company's leverage, with total debt 1.53 times total equity, should not be a cause for concern as business is still very strong. Its capital structure is indeed healthy, with long term debt accounting for 57.77% of total capital. SeaDrill's $3.19 billion in twelve month trailing core earnings, or EBITDA, shows a remarkable increase of 45.43% from the twelve months ended a year earlier, in which its core operations generated $2.20 billion.

    SeaDrill's cash flow grew considerably in its latest quarter to $627.00 million, a 79.86% increase from $348.60 million reported in the year earlier period. This growth seems to be accelerating considering that in the last twelve months the company's cash flow was 26.66% higher than the twelve months ended a year ago, a nice increase but quite lower than the current pace. This upward trend should boost its margins and overall profitability in the next few quarters. The company's net debt, which we define as total debt minus cash on hand, was $9.12 billion last quarter, 17.05 times its EBITDA of $535.00 million. Not only did this ratio increase from 13.26 in the equivalent quarter a year ago, but it is now fairly large, suggesting the company's flexibility in paying down its debt or raising new capital to pursue new opportunities may start to become limited. This we will keep watch on moving forward.


    Many were pulling the trigger to get out of the issue. This can be confirmed by reviewing the Time & Sales history over the past trading days of Thursday and Friday. I found myself scrambling to get quick footing to capitalize on the event, good or bad, the door rarely opens for explosive projected short-term and long-term gains, again, due to the problem of oil consumption is not going away anytime soon.

    We must set the mood for reviewing what exactly Goldman Sachs (GS) has been hired to do. Frankly, the CEO of SeaDrill creating a win in his personal financial welfare, but he further has set a win for investors, if one can come to understand the "Selling of Puts", is an optimistic strategy. For it's a very bullish move by the CEO and the Board of Directors. Strategies can be simply viewed as the stock price rises; the Put goes up in value. Goldman Sachs has been hired to build a significant bullish event by the protective nature of price appreciation strategy.


    How to make money with options with "Seller of Put Option" is one in contrast, if you are bullish (expect the market to rise), you might consider selling a put option.


    If you choose to buy or go long a put option, you are purchasing the right to sell the underlying instrument at whatever strike price you choose until the expiration date. The premium of the long put option will show up as a debit in your trading account. The cost of the premium is the maximum loss you risk by purchasing a put option. The maximum profit is limited to the downside as the underlying stock falls to zero.

    If you choose to sell or go short a put option, you are selling the right to sell the underlying stock at a particular strike price to an option holder. The premium of the short put will show up as a credit in your trading account.

    In most cases, you are anticipating that the short put option will simply expire worthless on the expiration date so that you can keep the premium received. The premium amount is the maximum profit you can receive by selling a put option and since the insider knowledge of CEO and market maker of Goldman Sachs are building an extreme bullish profit position in.

    Experienced Market Makers "Goldman Sachs" who choose to go short put options, does so in a stable or bull market because the put will not be exercised unless the market falls.

    Opportunity comes at any time of the trading day, even in the pre and post after-market news wire events. Could we be thinking this may be a VERY FOOLISH IDEA; the answer is NO. When you have what everyone in the world needs, and you raise the yield to hover 6.86% - 7.28% per cent. You have created a desirable stock issue that needs to be bought by many money managers.

    In the last earnings just recently filed, increased their dividend .76 to we believe; .80 cents each quarter from most recent announcement.

    This presents a buying signal, as Jim Cramer of Mad Money of CNBC, instructs, back up the truck and load up on the potential profit by both double bagging the dividend with stock appreciation for serious income bound money managers actively working their client's portfolio.

    I would venture to say; David Gardner of Motley Fool and a few other prominent analysts can keep their theme intact on this issue for the next couple of years. I still see targets well into the mid-50s to low 60s near term 6-12 months out as gleaned by subscription reports I subscribe to in trying to maintain an edge in the markets.

    Keep the Creator within the "Money Math" equation of economic theory's and the rest will all turn out fine.

    Purchased additional 65,000 thousand shares pre-market and regular days trading on March 2 2012 upon the Downgrade out of HSBC and "Selling of PUT Option" by Insider Trade Event 02/29/2012. I am further long the other issues of GS, XLF, GLD, XLE, AOD.


    Stock and options trading involves substantial risk. The valuation of stock and options may fluctuate, and as a result, in some cases, clients could lose more than their original investment. In no event should the content of this correspondence be construed as an express or an implied promise, guarantee or implication by or from James Gornick and or his affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Information provided in this correspondence is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

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