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ISI upgrades Hercules Offshore after moves

NEW YORK (AP) -- Shares of Hercules Offshore Inc. have been upgraded by one analyst after a series of deals in which the company has increased its focus on drilling in the shallow waters of the Gulf of Mexico.

International Strategy & Investment Group LLC raised the stock to "Strong Buy" from "Buy" late Monday, saying that Hercules is the driller in best position to benefit from additional increases in rates for so-called jack-up rigs in the Gulf.

ISI said that Hercules effectively acquired two jack-ups — portable rigs that are towed into place before the legs are lowered to the sea floor — with Monday's announced acquisition of a majority stake in Discovery Offshore SA. The company also said it was selling its domestic liftboat assets for about $54 million, and said last month it would sell most of its inland barge rigs for $45 million.

The company said the moves were designed to focus on the more profitable parts of its business with a better long-term outlook, including the Gulf of Mexico and international drilling operations.

With the deals, "we believe (Hercules) is taking the next step in the company's transformation into a purer offshore drilling story with an improving asset base," ISI analyst Judson Bailey wrote in a note to clients.

The analyst said Monday's deals would reduce 2013 earnings by removing profit from the liftboats, and he cut his forecast to 35 cents per share from 41 cents per share. But, the analyst wrote, the moves would boost 2014 earnings to $1.02 per share from his prior forecast of 95 cents per share.

Besides the upgrade, Bailey raised his 12-month price forecast on the shares to $10 from $9.

Hercules shares closed at $6.83 on Monday, up 38 cents.