On Tuesday, Seadrill (SDRL +0.00%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.
The deepwater-drilling industry has enjoyed huge amounts of activity in recent years, with new oil and gas finds sporting lucrative reserves but in difficult-to-reach places. Seadrill has been one of the biggest growth stories in energy over that period, but more recently, it hasn't lived up to investors' full expectations. Let's take an early look at what's been happening with Seadrill over the past quarter and what we're likely to see in its quarterly report.
Stats on Seadrill
|
Analyst EPS Estimate |
$0.58 |
|
Change From Year-Ago EPS |
(18%) |
|
Revenue Estimate |
$1.14 billion |
|
Change From Year-Ago Revenue |
8.5% |
|
Earnings Beats in Past 4 Quarters |
0 |
Source: Yahoo! Finance.
Will Seadrill finally satisfy investors this quarter?
After three straight earnings misses, analysts in recent months have lowered their expectations for Seadrill, shaving a nickel per share from their March-quarter estimates and reducing full-year 2013 expectations by more than $0.30 per share. The stock has held up well, though, rising about 8% since mid-February.
Seadrill has done an excellent job of taking advantage of a huge boom in deepwater drilling activity. With the number of new finds below 4,000 feet of water in 2012 crushing the old record by 40%, there's been more than enough business for the entire industry. Rival Transocean (RIG 2.43%) has managed to increase its backlog of business to $28.5 billion as of April, while Seadrill's latest total stood at $21 billion. That backlog has given Seadrill the flexibility to embark on a massive building project, seeking to extend its reach with nearly two dozen rigs under construction, including seven ultra-deepwater drillships. With dayrates climbing above the $600,000 mark, those new ships should help expand profits once they come on line for Seadrill.
Moreover, orders keep pouring in. Last month, Seadrill announced a $662 million three-year contract for a drillship that won't even get delivered until the middle of next year. Competitors are getting their share of new deals, as rival Noble (NE +0.00%) won a $655 million contract from Norway's Statoil earlier this month. But with so much activity, both Noble and Seadrill have more than enough opportunities to keep their growth prospects attractive.
One challenge that Seadrill faced last quarter was unexpected high downtime. The need to replace corroded bolts on blowout preventers added costs that held back Seadrill's earnings, but investors hope that the one-time expenses won't repeat themselves this quarter or in the future. Moreover, it's not a challenge that's unique to Seadrill, as Transocean suffered the same downtime-challenges in its most recent quarter as well.
In Seadrill's report, look to see how the company plans to use its Seadrill Partners (SDLP +0.00%) subsidiary to keep its debt under control and sustain its lucrative dividend. By shifting assets across the two entities, Seadrill can keep creditors happy while hopefully keeping its 8% dividend yield intact for the foreseeable future.
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