Rowan Tops on Strong Demand

Zacks

Rowan Companies Inc. (RDC) posted better-than-expected first quarter 2012 results, owing to greater demand and higher day rates for high specification jackups in the majority of markets. The company’s quarterly earnings from continuing operations came in at 45 cents per share, exceeding the Zacks Consensus Estimate of 34 cents. The quarterly results also substantially surpassed the year-ago level of 21 cents.

Total revenue expanded almost 62% year over year to $333.5 million in the reported quarter, and beat our expectation of $317.0 million. The outperformance was mainly attributable to increased activity from fleet additions and higher utilization of existing rigs between periods.

Dayrates and Utilization

The company’s Gulf of Mexico rigs experienced a dayrate of $118,200 (level with the year-ago quarter), Middle East rigs saw a dayrate of $145,800 (versus $128,700 a year ago) and North Sea rigs showed $227,700 (versus $182,500 in the year-ago quarter). The overall dayrate of all offshore rigs was $156,500 (versus $136,400 in the first-quarter 2011). Average utilization of the company’s rig improved to 75% from 65% in the year-earlier quarter.

Financials

As of March 31, 2012, cash balance was $342.5 million and long-term debt (including current maturities) was $1,122.2 million. Debt-to-capitalization ratio was 20.4% versus 20.8% in the prior quarter.

To Conclude

Houston, Texas-based Rowan Companies Inc. is a provider of international and domestic contract drilling and aviation services. During the quarter, the company experienced strong demand as well as solid dayrates for high-specification jackups in most of the markets. Rowan also enhanced its Southeast Asian footprint with two new rigs commitment bringing the total count to four in the region.

As a part of Rowan’s effort to diversify its markets geographically, the company has also taken the decision to move its official headquarters to the U.K., since most of its business comes from outside the U.S.

However, considering the volatile macro backdrop along with operational hindrances that could put pressure on the company’s performance in the upcoming quarters, we see a restricted upside potential for Rowan’s shares and expect the company to be on par with the industry. Therefore, we maintain our long-term Neutral rating.

Rowan, which competes with peers such as Noble Corporation (NE) and Ensco Plc (ESV), also holds a Zacks #3 Rank that translates to a short-term Hold rating

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