KLR Cuts Estimates, PT on Atwood Oceanics (ATW) over Debt Concerns

KLR Analyst, Darren Gacicia, reduced estimates and his price target on Atwood Oceanics (NYSE: ATW) to $10 from $12.50 to reflect higher contracting and greater credit risk. No change to the Hold rating.

The announcement of the newbuild delivery delay sent a negative signal regarding contract prospects in Brazil. ATW debt spreads have widened on the news, extending from ~15%-16% yields to 20%+. Credit markets appear to be spooked by seven rigs rolling off contract in 2016/2017 and Net Debt/EBITDA covenants at risk. He is increasing the WACC to ~23% to reflect greater risk to the story.

Seven rigs are rolling off contract through calendar 2016 leaving heightened risk to cash flow near term. As contract prospects worsen, utilization assumptions drop to 88% for 2H/16-1H/17 to better reflect the contracting risk. A lack of contracts may create funding requirements for newbuild payments.

Estimates drop for 2016 EPS to $2.39 from $2.64 and 2017 EPS to ($0.37) from ($0.07), to reflect later rig delivery dates and lower utilization assumptions in 2016/2017

For an analyst ratings summary and ratings history on Atwood Oceanics click here. For more ratings news on Atwood Oceanics click here.

Shares of Atwood Oceanics closed at $10.59 yesterday.

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