Do Seadrill’s Fundamentals Support Its Stock Price Spike?



Seadrill’s stock performance

March 2016 has been spectacular for Seadrill’s (SDRL) investors. On March 16, Seadrill’s stock price was up by 63% as compared to its price at the start of the month.

Other offshore drillers (XLE) have had the following returns over the same period:

[marketrealist-chart id=1143413]

In 2015, Seadrill was one of the hardest hit offshore drillers. However, the company has had some record-breaking one-day returns this month. On March 4, 2016, Seadrill’s stock price was up by 121%.

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Fredriksen’s role in stock boost

As we have seen above, Seadrill rose the most as investors covered short bets in speculation of a bailout. In March, John Fredriksen sold his $510 million stake in Marine Harvest. Fredriksen’s investments have suffered over the past 18 months with the slump in crude oil prices, but his investment in Marine Harvest, a seafood company, did well, and its share prices in February jumped to the highest levels since October 2003. After the sale, Fredrikson’s ownership in Marine Harvest was cut by a third to 17.7%. As Fredrikson freed up cash, investors speculated he would put that cash into Seadrill to save the debt-ridden company with over $11 billion of debt.

Fredriksen’s stepping in to save the company should not come as a big surprise to investors looking at his history. The shipping tycoon has saved other companies from drowning as well. In 2011, it was Frontline (FRO), the crude tanker company, and he has already shown a willingness to support his companies by joining in a $1.7 billion kroner issue in bulk carrier Golden Ocean Group.

Series focus

Amid Seadrill’s spectacular share price performance, we’ll take a look at the company’s fundamentals. We’ll assess the company’s backlog position to figure out its future revenues and then we’ll examine Seadrill’s debt and its capex requirements. We’ll end the series by looking at the company’s valuations and Wall Street recommendations.


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