Shares of Borr Drilling (BORR +1.47%) rallied in today's trading, up 10.3% for the day Thursday.
The company, which contracts offshore oil and gas jack-up rigs for shallow water drilling, reported earnings this morning. But while the actual first-quarter profits may have underwhelmed, revenue beat estimates. Furthermore, management's projections for the year and decision to double the company's dividend seem to have overwhelmed all other considerations.
NYSE: BORR
Key Data Points
Investors cheer a doubled dividend, now yielding 6.2%
For Q1, Borr reported $234 million in revenue, above the consensus estimate of $230 million, though earnings per share of $0.06 missed estimates of $0.15. While the bottom line may have missed due to some unforeseen costs, it was still encouraging to see the company grow revenue, and for profits to flip into positive territory from a small loss in the year-ago quarter.
Furthermore, management's commentary and forward-looking projections were much more encouraging. Despite the Q1 profit miss, management still reiterated its full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance of $500 million to $550 million. That confidence was spurred by the signing of new contracts for its rigs. Notably, the company highlighted a new contract that amounts to a day rate of over $200,000 per day, the first contract in the company's history to exceed that amount.
On the back of the strong market management it's seeing, the company also approved a quarterly dividend increase from $0.05 to $0.10. That amounts to a 6.2% dividend yield at the current stock price, even after today's rally.
Borr remains a levered play on oil prices
Borr is a somewhat risky play, with a market cap of $1.7 billion but net debt around $1.6 billion. So, Borr will need oil prices to remain strong enough to maintain demand for its rigs and generate profits. That being said, the market is optimistic for 2024, with analysts predicting profits inflecting up to $0.76 per share this year, which would amount to a forward P/E of just 8.5.
Like many other traditional energy plays, Borr looks quite cheap. Of course, renewable energy is still on the rise, which may limit Borr's prospects for margin expansion. But investors appear to be cheering on the increased cash returns announced today.
