There has been some evidence that the offshore oil rig business has finally turned the corner, and Noble Corporation's (NEBLQ) most recent quarter is further evidence that this is the case. The company hasn't quite made it back to profitable operations, but it is putting its rigs back to work and expects this trend to continue for some time. 

Here's a look at Noble's most recent results and a look at whether investors should consider buying shares of this dirt cheap stock

By the numbers

Metric Q3 2018 Q2 2018 Q3 2017
Revenue $279.4 million $258.4 million $266.2 million
Operating income (loss) ($21.8 million) ($845.6 million) ($56.6 million)
Net income ($81.5 million) ($628.0 million) ($96.8 million)
Diluted EPS ($0.33) ($2.55) ($0.40)

Data source: Noble Corporation earnings release. EPS = earnings per share.

Noble's second quarter might have looked like a step backward, but the company's huge loss in the quarter was actually business as usual for rig companies, as management elected to retire some of its older rigs. What really mattered for the future was that revenue was still increasing as it was finding more work for its idle rigs. 

That happened again this quarter as revenue was up 8% versus the prior quarter thanks to a couple of its rigs starting new contracts. That in and of itself is good news, but it was even more encouraging to see the company's average dayrate increase compared with the prior quarters, and that its utilization rate was up to 69%. Rising utilization rates mean that rig owners will have more leverage when negotiating contracts for rigs, which should allow Noble and others to get higher dayrates. 

Drillship on the ocean.

Image source: Getty Images.

According to the company's most-recent fleet status report, we should expect even better results in the fourth quarter, as three rigs started operations in October. One was a jack-up rig that it acquired from a shipyard in order to fulfill a contract demand. While it's hard to say whether these new rigs will lead to a profitable fourth quarter, it looks likely.

What management had to say

In Noble's press release, CEO Julie Robertson highlighted some of its recent contract wins and why she thinks the company will be able to build on this recent success:

It is apparent that a meaningful increase in drilling activity has begun, as customers increasingly recognize the compelling economics inherent in their offshore project portfolios. As more of these projects transition from an evaluation phase to full execution, and additional access is granted to promising offshore basins, we believe higher fleet utilization industrywide is likely, especially for high-specification rigs. Recent contract awards across the Noble fleet -- including those for the drillships Noble Globetrotter II, Noble Tom Madden, and Noble Sam Croft; and the recent purchase and concurrent three-year award for the jack-up Noble Johnny Whitstine -- give evidence of a more fundamentally sound environment, while serving to strengthen Noble's competitive position as we enter 2019.

NE Chart

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Some things to like, but perhaps not the best bet

Noble's stock has been in the doldrums for years, as offshore rig companies went out of favor. Even now that the company's results are clearly on the upswing, its stock still trades for a fraction of the company's book value. 

There are certainly some things to like about Noble's stock at today's prices. Its jack-up fleet is fully contracted for the next several years, which gives it a steady, profitable revenue stream to fall back upon while it finds work for its floating fleet. These rigs are the ones that can pull in high dayrates and make Noble a much more profitable company if it can get these rigs fully contracted as well.

The one concern with Noble is that it is carrying a much larger debt load than its peers and doesn't have the cash reserves others have. If for some reason the offshore industry were to hit a speed bump on this road to recovery, Noble would likely suffer more than its peers. And that's why it is still selling for an even greater discount than some other offshore rig companies.