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Analyzing Diamond Offshore Drilling’s Free Cash Flow

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Jan. 7 2016, Updated 8:07 a.m. ET

Diamond Offshore Drilling’s operating cash flows and capex

In this article, we’ll analyze how Diamond Offshore Drilling’s (DO) operating cash flows have trended over the past few quarters. We’ll also discuss how its free cash flows (or FCF) were affected given its capital expenditures (capex).

DO’s cash from operating activities (or CFO) rose marginally, by 2.7%, in fiscal 3Q15 over fiscal 3Q14. DO generated $317 million in operating cash flows in fiscal 3Q15. Although DO’s revenues fell following the crude oil price fall and upstream companies’ exploration and production budget reductions, better-working capital management led to higher cash flows.

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Diamond Offshore Drilling’s free cash flow

DO’s FCF was volatile from fiscal 1Q13 to fiscal 3Q15. DO’s capex fell 65% in the year until fiscal 3Q15. DO’s CFO rose in the past year, leading FCF to more than double in the one-year period.

In comparison, Nabors Industries (NBR) saw an 8% FCF fall in fiscal 3Q15 over fiscal 3Q14. NBR is DO’s similar market cap peer, generating $90 million FCF in fiscal 3Q15. DO makes up 0.01% of the SPDR S&P 500 ETF (SPY), but for investors who would like energy exposure, energy makes up 6.5% of SPY.

Next, we’ll discuss DO’s historical valuation multiples.

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