Shares of offshore drilling contractor, SeaDrill Limited (SDRL – Snapshot Report), plunged 23% to touch a 52-week low of $15.93 as the company’s board of directors decided to suspend dividend payments. Offshore drilling market softness owing to drastic decline in oil prices for most of the third quarter, along with falling day rates and heightened competition due to oversupply of rigs have weighed heavily on the company’s earnings. The considerable profit decline has compelled the board to disappoint investors by calling off dividend payouts.
Let’s take a closer look at the company’s third quarter earnings. During the July to September quarter this year, SeaDrill’s earnings per share – excluding one-time items – came at 45 cents, which missed the Zacks Consensus Estimate and the year-ago adjusted profit, both at 68 cents, by a wide margin.
What its investors disfavored is that the company did not live up to its previous assurance of keeping dividend secure till the end of 2015. SeaDrill did not to keep its word and has lost the trust of its shareholders for sure. However, SeaDrill defended that this tough decision is in favor of its shareholders, as the amount saved by not paying dividend would be used to strengthen its balance sheet, and reducing debt is part of it. SeaDrill will also utilize the saved cash to buy back shares and for future acquisition opportunities.
Hamilton, Bermuda-based Seadrill currently carries a Zacks Rank #5 (Strong Sell), implying that it will significantly underperform the broader U.S. equity market over the next one to three months.
Meanwhile, one can look at better-ranked players in the energy sector like Murphy USA Inc. (MUSA – Snapshot Report), SandRidge Mississippian Trust I (SDT –Snapshot Report) and Sandridge Mississippian Trust II (SDR). All these stocks sport a Zacks Rank #1 (Strong Buy).
