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SeaDrill (SDRL) Q4 Earnings: Is Positive Surprise in Store?

Nilanjan Choudhury

We expect leading contract driller SeaDrill Ltd. SDRL to beat expectations when it reports fourth-quarter 2016 results on Tuesday, Feb 28.

In the preceding three-month period, the company delivered a positive earnings surprise of 40.00% due to lower operating expenses.

In terms of earnings surprise history, SeaDrill has a good record. It beat estimates in three of the last four quarters.

Seadrill Limited Price and EPS Surprise

Seadrill Limited Price and EPS Surprise | Seadrill Limited Quote

Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that SeaDrill – whose drilling fleet is one of the youngest and most advanced when compared to that of major contractors engaged in offshore drilling – is likely to beat earnings in the to-be-reported quarter because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP for this company stands at +7.69%. This is because the Most Accurate estimate stands at 14 cents, whereas the Zacks Consensus Estimate is pegged lower at 13 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: SeaDrill carries a Zacks Rank #3 (Hold) which, when combined with a positive ESP, makes us confident of an earnings beat.

Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. On the other hand, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

What's Driving the Better-Than-Expected Earnings?

SeaDrill is one of the leading offshore drilling contractors in the world with one of the youngest but most advanced fleets. The company has a strong backlog of $3 billion, which not only reflects steady demand from its customers but also offers an unmatched level of earnings and cash flow visibility. Moreover, SeaDrill has high economic utilization for its floaters, which is expected to help it maintain a steady flow of income.

With an aggressive cost reduction program, SeaDrill is looking to shore up its operational performance even in this weak oil and gas pricing environment. As part of this strategy, the company has embarked on a policy to optimize overhead and rig operating expenses.

Other Stocks to Consider

SeaDrill is not the only energy firms looking up this earnings season. Here are some companies from the space which, according to our model, also have the right combination of elements to post earnings beat this quarter:

W&T Offshore Inc. WTI has an Earnings ESP of +66.67% and a Zacks Rank #2. The company is expected to release earnings results on Mar 1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cheniere Energy Inc. LNG has an Earnings ESP of +3.23% and a Zacks Rank #2. The company is anticipated to release earnings on Feb 28.

Eclipse Resources Corp. ECR has an Earnings ESP of +14.29% and a Zacks Rank #2. The company is likely to release earnings on Feb 28.

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Seadrill Limited (SDRL): Free Stock Analysis Report
 
W&T Offshore, Inc. (WTI): Free Stock Analysis Report
 
Eclipse Resources Corporation (ECR): Free Stock Analysis Report
 
Cheniere Energy, Inc. (LNG): Free Stock Analysis Report
 
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