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Pacific Drilling: A Strong Buy

Zacks Equity Research

On Nov 19, Zacks Investment Research upgraded Pacific Drilling S.A. (PACD) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The offshore drilling contractor Pacific Drilling S.A. has delivered positive earnings surprises in the last 4 quarters with an average beat of 109.82%. Consistently good performance has driven the company’s earnings estimates higher.
The Zacks Consensus Estimate for 2013 increased 23.5% in the last 30 days to 42 cents per share, reflecting estimated year-over-year growth of 163.5%. For 2014, the consensus increased 14.1% over the same time period to 81 cents per share, reflecting projected growth of 91.1%.

In the third quarter, the company reported earnings of 14 cents, beating the Zacks Consensus Estimate by 75%. Pacific Drilling’s strong cash flow generation capability enabled it to finance construction payments for Pacific Sharav and Pacific Meltem drillships with cash on hand. The company was not required to draw from its $1 billion senior secured credit facility.

The addition of the new drillship, Pacific Khamsin, by the end of this year will boost the company’s revenues. We believe the cash generation ability of Pacific Drilling and its $1.2 billion undrawn capacity under its credit facilities will help it to fund the ongoing construction of three additional drillships. The construction of new drillships indicates robust demand in the long run.

The present valuation also makes the stock look attractive. The P/B ratio of the company in the trailing twelve months was 1.08%, lower than its industry peers of 1.20%. The Return of Equity of the company in the trailing twelve months was 3.5%, higher than the industry average of 2.9%.

Other Stocks to Consider

Besides Pacific Drilling S.A., other companies in the sector also performing well include Helmerich & Payne, Inc. (HP), Cimarex Energy Co. (XEC) and Tesco Corporation (TESO). Helmerich & Payne and Cimarex Energy Co. have a Zacks Rank #2 (Buy) while Tesco Corporation has a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on HP
Read the Full Research Report on TESO
Read the Full Research Report on PACD
Read the Full Research Report on XEC

Zacks Investment Research