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Jefferies Starts Diamond Offshore (DO) at Hold

December 3, 2014 6:43 AM EST
Get Alerts DO Hot Sheet
Price: $13.64 +1.49%

Rating Summary:
    8 Buy, 17 Hold, 14 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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Jefferies assumes coverage on Diamond Offshore (NYSE: DO) with a Hold rating and a price target of $32.00.

Analyst Eduardo Royes comments, "We are Hold-rated on DO shares. Given the lack of indication that the market is bottoming and exposure still to particularly weak markets (the North Sea stands out most within the next 12 months), earnings uncertainty remains disproportionate still. Further, shares are not particularly compelling on a relative valuation basis on 2016 either (5.7x versus the peer group average of 5.8x). However, despite this unfavorable outlook, we see two relative positives that support a Hold rating. These positives are (1) our sense that 2016 Street estimates are reasonable under our inflection year framework (a differentiator to similarly challenged peer RIG, for which we see 8% downside to EBITDA), and (2) although a dividend cut is a real possibility, it would be more out of strategic preference (i.e., for asset acquisitions) than necessity, as under current debt metrics, we believe DO could (with help from the revolver) continue to pay a robust dividend. Finally, we believe DO is well in the process of (finally) shedding its reputation as the hapless, old (worst) fleet company among the big players. By proactively scrapping its rigs that are least capable and stacking other lower capability rigs that have come into availability early into this downcycle, DO is (1) chipping away at disproportionate regional standard rig exposure (in Brazil, for example), (2) making for a less downwardly competitive pricing environment and (3) ultimately, transitioning its fleet into a more average quality/capability fleet. There is still progress to be made, but the hurdle starts to feel less insurmountable as the decks get cleared."

For an analyst ratings summary and ratings history on Diamond Offshore click here. For more ratings news on Diamond Offshore click here.

Shares of Diamond Offshore closed at $30.35 yesterday.



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