JPMorgan Initiates Offshore Drillers with a Negative Outlook
- firm initiates RDC with Overweight rating, price target $26- firm initiates DO with Neutral rating, price target $29- firm initiates ESV with Underweight rating, price target $21
- firm initiates NE with Underweight rating, price target $15
- firm initiates RIG with Underweight rating, price target $16- Firm anticipates the structural challenges facing the industry to persist for at least the next 24 months
- Firm expects day rates and utilization to continue to trend downward for both floaters and jackups as demand for IOCs and NOCs remains tepid and supply growth from newbuild deliveries outstrips fleet attrition
- Firm thinks the notion that newbuild jackups will displace the pre-1985 cycle jackups and usher in a homogeneous high-spec jackup market is a misconception.
- Firm expects incumbent premium jackups to fare better than the market is expecting, and for 4th/5th gen moored semis and commodity jackups to provide cheap optionality in a more protracted downturn.
- As the market paints the industry with a broad brush, firm believes there are opportunities to identify niche exposures that can provide pricing power, captive utilization, and time optionality advantages to certain contractors.
- As contract coverage rolls off and we enter a more uncertain environment in 2016-2017, these incremental factors will drive outperformance, in firm's view.