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Why Ocean Rig UDW Inc's Shares Popped 16% Today

By Travis Hoium - May 12, 2015 at 12:29PM

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A strong quarter had investors excited about this offshore drilling stock.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of drilling rig owner Ocean Rig UDW Inc (ORIG) jumped as much as 16% today after it reported first-quarter earnings.

So what: Revenue rose 11% to $402.1 million and net income for the quarter was $41.0 million, or $0.31 per share. Analysts were only expecting revenue of $396 million and earnings of $0.08 per share.  

On top of the better-than-expected results, management declared a $0.19-per-share dividend, at a time when many other drillers have either reduced their dividends or suspended them altogether.

Now what: New rigs have also been pushed out, leaving only one uncontracted newbuild in 2016. And there's only one rig that comes off contract in 2015. That should leave the company in a strong position to weather the market's current downturn.

I would be cautiously optimistic on Ocean Rig today given the company's $4.7 billion backlog and relatively young fleet. And oil climbing to nearly $61 per barrel per day doesn't hurt the market's sentiment either. But there's still a lot of risk of a prolonged decline in offshore drilling, so keep an eye on how contract flow progresses over the coming quarters before you get too bullish.

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