Will Seadrill Keep Striking Black Gold Throughout 2012?

With half of 2012 in the record books, it's important to take a look at whether or not the stocks that interest you can live up to their full potential. By making sure you know about a company's future plans and possible challenges, you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Seadrill (NYSE: SDRL  ) . As we saw in our look at Seadrill earlier this month, the deepwater drilling industry has done very well lately, with huge finds around the world putting Seadrill's rigs in high demand. But with energy prices becoming increasingly volatile, can the good times continue for the company? Let's take a quick look at Seadrill's prospects for the rest of the year and beyond.

Stats on Seadrill

Average Stock Price Target $44.00
2012 EPS Estimate $3.16
2013 EPS Estimate $3.59
2012 Sales Growth Estimate 5.5%
2013 Sales Growth Estimate 15.2%
CAPS Rating (out of 5) *****

Source: Yahoo! Finance.

Will Seadrill keep striking it rich?
Seadrill has undoubtedly performed very well over the past couple of years, doubling since mid-2010. So far, with Petroleo Brasileiro (NYSE: PBR  ) finding huge amounts of oil off the coast of Brazil and Statoil (NYSE: STO  ) sitting on some big discoveries in Norway's seas, there's no shortage of places where exploration and production companies need to enlist the help of Seadrill and peers Transocean (NYSE: RIG  ) , and more recently Noble (NYSE: NE  ) , to assist with the challenges of drilling in the depths of the world's oceans. That has sent rates on ultra-deepwater rigs soaring, and Seadrill is cashing in.

The big question for Seadrill is how it will stand up to increased competition. Just as tanker companies responded to a boom in demand by building what eventually became a glut of new vessels, so too may new competitors end up building so many deepwater rigs that the market becomes depressed. Especially as oil prices have fallen below $100 in the U.S., concerns that E&P companies may be less willing to pay sky-high rates for less lucrative finds have to affect Seadrill's prospects.

With the company having taken advantage of attractive financing opportunities, Seadrill has accumulated significant debt and is somewhat sensitive to conditions in the credit market. But as long as the company can continue to generate the cash flow it has thus far, it should be able to handle the debt and keep earning impressive returns for shareholders.

If you like the prospects for energy, let us show you another stock you should look at more closely. Read about it right here in the Motley Fool's special free report on the energy industry and its best prospects.

Click here to add Seadrill to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Seadrill and Transocean. Motley Fool newsletter services have recommended buying shares of Seadrill, Statoil, and Petroleo Brasileiro. 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 Fool has a disclosure policy.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 26, 2012, at 9:04 AM, artmuseum wrote:

    Here is another "green eyeshaded" note without mentioning John Fredricksen, the financial engineering genius at the helm of SDRL. Will any fool mention Berkshire Hathaway without Warren B?

    By + bye if the Yahoo stock charts are to be believed, generous dividend payer JF has outperformed stingy or non-dividend payer WB in the past decade.

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