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What: Shares of offshore drilling rig owner Hercules Offshore, (UNKNOWN:HERO.DL) fell 16% today after being downgraded by an analyst.
So what: An analyst at Global Hunter Securities downgraded the stock from a buy rating to a neutral rating, and reduced the price target from $12 to $6. The analyst pointed to disappointing contracts for Discovery rigs, and Gulf of Mexico dayrates have reduced the upside for a business that recovered nicely last year.
Now what: The shallow water market, where Hercules Offshore is focused, is more up and down than in deeper water because it's quicker to drill wells, and there's more supply in the market. Competitor Noble recently pointed to weakness in new contracts, which would affect Hercules more than companies that contract rigs for years at a time. Downgrade or not, I don't like Hercules' position in the market, and would focus on ultra-deepwater, where margins are higher and there's more stability.
Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.