Citi Upgrades Seadrill Ltd. (NYSE: SDRL) to Buy with Reduced Price Target - InvestingPro Insights
Citi has revised its stance on Seadrill Ltd. (NYSE: SDRL), upgrading the stock rating to Buy from Neutral while adjusting the price target to $52 from $60. The change reflects a shift in the company's forecast methodology, considering fewer rig reactivations, increased downtime in 2025, and slightly lower rates for 6th generation floaters.
The offshore drilling sector presents a challenging opportunity for energy investors, with a potential increase in rig demand by 2026 leading to attractive free cash flow (FCF) yields exceeding 20%. Despite this positive outlook, the revised forecast indicates a possible decline in EBITDA expectations for 2025.
Recent market pullbacks and discussions suggest that some concerns may already be priced into Seadrill's stock. As a result, Citi has adjusted its preference order among drilling companies, taking into account the potential for stock buybacks and mergers and acquisitions (M&A) activity.
Seadrill's upgrade is supported by expectations of a 20%+ FCF yield in 2026, the renewal of Brazilian rigs at strong rates, and a higher likelihood of acquisition. On the other hand, Citi downgraded Transocean Ltd. (NYSE: RIG) to Neutral with a price target of $4.50, citing acknowledged contract strengths and a premium valuation based on conservative assumptions.
In its financial results for Q2 2024, Seadrill reported an EBITDA of $133 million and operating revenues of $375 million. The company has adjusted its earnings forecast for the second half of the year due to revised contract start dates and uncommitted rig availability.
Seadrill will streamline operations by terminating its secondary listing on the Oslo Stock Exchange and focusing solely on the NYSE. The company's full-year EBITDA is projected between $315 million to $365 million, with revenues expected to be $1.355 billion to $1.405 billion.
Despite near-term challenges in the deepwater drilling industry, Seadrill remains driven by strong market fundamentals, supported by recent buyback initiatives and positive market conditions.
InvestingPro Insights provide a deeper financial perspective on Seadrill, highlighting key metrics such as market capitalization, P/E ratio, revenue growth, and price performance. The company's low P/E ratio suggests potential undervaluation, while strong revenue growth indicates business expansion opportunities.
For comprehensive analysis and guidance, InvestingPro offers additional tips on Seadrill's financials and market potential, assisting investors in making informed decisions based on real-time data and expert insights.
In conclusion, Seadrill's upgraded status, financial results, and market performance offer investors a glimpse into the offshore drilling sector's potential. By considering key metrics and insights, investors can navigate the market with confidence and strategic decision-making.