Seadrill Stock Forecast [Swimming In Debt]

Seadrill Stock Forecast: Seadrill [NYSE: SDRL] is a deep-water drilling contractor providing offshore drilling services to the oil and gas industry.

Its Floaters segment deals with drilling, completion and maintenance of offshore exploration and production wells. The Floater segment is the biggest contributor to the company’s revenue.

Its Jack-up rigs segment relates to operations in shallow, mid, deep, and ultra-deep-water areas in harsh and benign environments. The offshore drilling contractor also offers third-party management services.

It wasn’t long ago that Seadrill emerged from bankruptcy to sail again, so what is the current Seadrill stock forecast?

Is Seadrill A Buy?

Seadrill Ltd [NYSE: SDRL] announced its quarterly earnings results on November 21. The oil and gas company reported a net loss of $521 million, equivalent to the net loss per share of $5.21 for the quarter.

Seadrill Financial Stats

The consensus estimate was a negative EPS of $2.12. The company had reported a negative earnings per share of $2.40 in the same quarter last year.

The oil and gas company had a revenue of $367 million during the quarter, compared to the consensus estimate of $312.68 million. The company’s revenue went up 47.4% on a year-over-year basis.

Seadrill has a 12-month low of $0.91 and a 12-month high of $15.30. The company has a quick ratio of 2. 74, a current ratio of 3.27 and a debt-to-equity ratio of 2.63 depicting that it is well-poised to take care of its short-term liabilities.

Seadrill Stock Analysis

Shares of offshore-drilling contractor Seadrill Ltd. have suffered from heightened volatility, rising and diving – mostly diving.

This continues in line with the industrial trend as stocks of offshore-drilling contractors have been highly volatile in recent years. However, investors in Seadrill have had a rather painful time in comparison to other investors.

Investing in energy stocks is never completely devoid of challenges. This in particular stings more for companies like Seadrill with a patchy history of financial wrangles and anemic cash flows.

Seadrill has burned $291 million in negative operating cash over the past 12 months. Its operating results post-bankruptcy also leave a lot to be desired despite offshore-drilling work gaining some momentum.

At the height of its business in 2013, Seadrill could perhaps easily have raised to the tune of 6 billion via an additional equity sale, but instead chose to opt for bank financing, which has put it in a real spot of bother.

All said and done, it would be foolish to completely write off Seadrill. Its balance sheets display some strength, with less than $7 billion in debt and more than $1.4 billion in cash and equivalents at the end of the quarter.

The situation is not as dire now as it was when it filed for bankruptcy which gives it some room to put more of its fleets under contract.

Risks of Buying Seadrill?

The company, in its Q3/2019 report, informed about $302 million non-cash impairment on its investment related to Seadrill Partners. Chairman John Fredriksen resigned with immediate effect.

The management was candid about the fact that industry recovery was much below expectations, which could force the offshore driller to restructure the company’s debt a second time.

Seadrill Partners is facing $2.9 billion in near-term debt maturities and the company has resumed holding talks with its lenders. The company, irrespective of having adequate liquidity to postpone $500 million of scheduled debt amortization payments, will eventually have to face debt maturities starting in 2022.

Seadrill Debt Burden Looms Large

All in all, the company seems to have little leeway as another debt structuring looms on the horizon, with lackluster industry recovery failing to rekindle faith or confidence in lenders to consider extending or refinancing debt ahead of schedule.

SDRL is forecast to remain unprofitable over the next 3 years. The offshore drilling contractor, in fact, has failed to report any profit over the past 5 years. For loss making firms, their 1 year of cash runway is assessed.

Here’s some good news for SDRL as it has sufficient cash runway for more than 3 years based on its current free cash flow.

Seadrill Stock Forecast Summary

Analysts offering 12-month target prices for Seadrill have a median target of $6.58, with a high estimate of $13.25 and a low estimate of $0.55. This suggests a possible upside of around 500% from the stocks’ last closing price. No matter how you slice it, Seadrill is a risky prospect, alebit with the possibility of a very high ROI.

Trivia: Seadrill, incorporated as a Bermuda company on May 10, 2005 by John Fredriksen – a Norwegian-born shipping tycoon, – derives a majority share of its revenue from Norway. It also has a presence in Nigeria, Brazil, Saudi Arabia, United States, and Angola. The company, which is managed from London, filed for bankruptcy in September 2017, and emerged from it in July 2018.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.