The rating was specifically based on the unknown use of the proceeds from the IPO of OCRG given managements track record. It noted DSX was a better play given this uncertainty but that the outlook was positive with the potential for a significant upgrade. (Personally, I think he should have suspended his PT until next quarter as should all the analysts.) It noted that everything OCRG did during the quarter was positive except that it's EBITA estimates were missed by 5M. Likewise, it noted that Dryships maintaining a controlling interest in Ocean Rig would be a negative and any debt guarantees as well. But it did note that the IPO should garner a very positive response if they meet the above criteria. (Also, keep in mind on the conference call the CFO noted that EBITA will accelerate this quarter.)
If Dryships receives aprox $2.5B (which I honestly believe is conservative given the area OCRG operates in and the fact is in the only pure play to this date). You can forget what OCRG is trading at on the Pink Sheets in Norway---that is simply based on the pullback in energy stocks. If they buy back 100-150M shares at anywhere near $4 a share that's a bargain for them and the shareholders considering the share count is a big issue. But I'd pay down about 1B in debt and buy back .5B worth of shares and use the rest as working capital for acquisitions. We all know is a decent market with an average debt load these company generate very high profits.
Energy has been one of the worst performing sectors in the last quarter as well as dry bulk and tanker stocks....thus the reaction in the price. Given Dryships contract coverage and long-term charters on their capsize vessels things will turn around if the proceeds are used correctly....which is a big "IF" given the CEO's track record. They have made it very known that this will be done in a way to substantially increase shareholder value and the COO said back in 2010 that the stock could double after they IPO Ocean Rig with the backlog built up.
Paying down debt and buying back shares will make this stock skyrocket....that is not rocket science. The only question that remains is .....WHAT WILL GEORGE DO............I THINK IT'S ABOUT TIME HE DELIVERS something and gets off MR. CRAMERS WALL OF SHAME!
Keep in mind 3B of cash on the balance sheet ---even at this share count is worth $7.5 a share based on 400M shares which is above the last count of ~340M. So when they say unlock the value of OCRG....it's as simple as that.
The market will reflect a majority of that cash as soon as it hits. Even at a 50% discount to cash on hand your looking at a share price of $6.8 and I think this is what Mr. Gregory Lewis is getting at.......
Also, when the Drillship IPO occurs, the debt associated with them spins off will occur as well. So 1.5 billion or so will leave DRYS with Drillships IPO. DRYS will spin off Drill ships and their debt together.
Then we will have 1,2 billion in debt and somewhere in the area of 2 to 2.5 billion in cash and Drill stock.
This will be the magic of unlocked value they keep telling about.
Then all the brilliant analysts will change their ratings.
The OCRG IPO was last December in Oslo, with DRYS selling 22%. What is the EPS estimate for OCRG in 2011? How much debt does OCRG have? What is the current PE ratio for OCRG? What will GE do with the $$$ for selling another 22% of OCRG on the NYSE? Will his yearly salary double or triple?