What is your take on SDRL. The stock price has been on the decline of late but seems like they have good cash flow, actively pay down debt, and have a very generous dividend. It looks too good to be true!
Thanks for the assignment. This will be the first time that I undertake an analysis of Seadrill Ltd. (SDRL NYSE) which is a deep water drilling contractor with 69 operating units including drillships, jack-up rigs, semi-submersible rigs, and tender rigs. The fundamental elements you have attributed to the firm are all well and good but the macro trend that is washing over SDRL and its competitors in the sector is what is ruling the day. The oil and gas majors that contract offshore drilling services are currently cutting their budgets in an effort to tidy up their balance sheets. As you might expect when customers are pulling back it has a negative effect on suppliers.
It also doesn’t help when a company is perceived to have strapped on too much debt at rates tied to the London Interbank Offer Rate (LIBOR). If rates begin to rise debt servicing cost rise with them putting a pinch on cash flow. You mentioned the generous dividend and with a yield 11.97% its a monster that will attract income starved investors.
An inspection of the charts will help identify if this would be a good entry point.
The three-year chart displays the sell signals generated by the MACD and the RSI in September of 2013 as the stock topped out at a 52-week high of $48.09.What followed was a breach of support along the 50-day moving average in November of 2013 followed by a break below the 200-day moving average in December. A death cross formed in January of 2014 which indicated that the selling pressure would continue.
The chart informs us that the uptrend has been broken and we are now in the midst of a trend reversal with resistance along the new downtrend line and the 50-day moving average. SDRL is trying to build a base near $33.00 but the MACD and the RSI are indicating that sellers continue to control the market for this stock.
The six-month chart provides a close-up of the death cross, the downtrend line, and the resistance along the moving averages that are the dominate features that should not be ignored. All of these factors suggest the prudent investor would wait to confirm the bottom of this downtrend before committing capital.
Make it a profitable day and happy capitalism!