Facebook
Twitter
Seadrill Ltd.’s (NYSE: SDRL) second-quarter earnings release on Thursday contained some positive surprises, but it was overshadowed by other news. The oil-services company reported that – although its earnings beat expectations – it was facing other major challenges in the form of the delayed delivery of several offshore rigs that could weigh on its results for years to come.
Seadrill, which provides offshore rigs and related drilling services to the oil and gas industry, sees challenging market conditions for at least the next six months. While plenty of businesses and consumers are enjoying the lower costs brought about by low oil prices, companies like Seadrill that operate in the oil and gas sector are suffering.
And, while quarterly earnings are a good measure of a company’s performance, Seadrill’s news of the rig delays dominated the day and cannot help but put a damper on its outlook.
A Tough Year
Seadrill’s stock, which has had a year that can only be described as brutal, did jump on the second-quarter earnings news, gaining 88 cents, or more than 13%, to close at $7.38 per share. That price, however, is just a fraction of its one-year high of $37.41 per share.
Likewise, some perspective is needed on the Seadrill earnings numbers. While operating income did beat expectations, it also fell sharply, to $384 million from $703 million in the year-earlier quarter. Revenues fell short of forecasts and declined, to $1.15 billion from $1.22 billion.
At Wyatt Research, we encourage investors to buy and hold for the long term, and in the long term, oil prices are likely to rise. And when oil prices do recover, Seadrill, as an established player with an extensive fleet, is likely to show strong growth both in its financial results and its stock price. The fact that the company was able to surpass forecasts for earnings even in such a challenging time does point to some strong management that is skilled at navigating the ups and downs.
The big question right now is: When will oil prices rebound? The reality is that nobody knows. Like stocks, oil prices rise and fall but it is almost impossible to predict when things will turn.
So my advice to investors and would-be investors is a little mixed. Seadrill today is a very cheap stock that most likely has some growth in its long-term future. If you are an investor who has the stomach for wild rides and the patience to ride out the slumps, this stock could be worth a closer look. But you should also understand that the current slump could go on for quite some time.
This is making ordinary people rich
Ordinary people across America are getting insanely rich. Take Gladys Holm. She never earned more than $15,000 a year as a secretary. But by making one simple move, she was able to leave an $18 million fortune to a children’s hospital when she died. There’s many more just like her. Find out how they did it right here.