KeyBanc Starts Rowan Companies (RDC) at Sector Weight

KeyBanc initiated coverage on Rowan Companies (NYSE: RDC) with a Sector Weight rating.

Analyst Robin Shoemaker said, "Rowan’s UDW rig building program was launched in 2011 and the Company placed four rigs in operation (all with long-term contracts) between April 2014 and June 2015. We estimate that in 2016, the four UDW rigs will account for 39% of RDC’s revenue and 57% of its operating profit. The four rigs are contracted at rates ranging from $582K/day to $620K/day. There is a huge gap between these contract rates and current market rates for similar UDW drillships. Based on recent fixtures, we can assume that the day rates RDC earns today would drop by 50% (at least) if its four UDW rigs were contracted at current leading edge rates. Since three of the four long-term contracts expire in 2017, and the fourth expires in early 2018, Rowan faces a major re-pricing risk within the next two years. We could see slightly improved demand and pricing for UDW rigs by 2017—assuming oil prices have recovered to at least $80/barrel—but rates will be nowhere near the peak cycle rates RDC is earning today. Probably the best scenario is one in which RDC negotiates “blend and extend” deals on a few of its UDW rigs since this would provide greater visibility to cash flows in 2017 and 2018."

For an analyst ratings summary and ratings history on Rowan Companies click here. For more ratings news on Rowan Companies click here.

Shares of Rowan Companies closed at $19.97 yesterday.

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