What happens next?
In the previous part of this series, we saw how analysts have turned bearish on Seadrill (SDRL). Even if Seadrill files for Chapter 11 bankruptcy protection, the story could end for its shareholders.
However, the story wouldn’t end for the company. Bankruptcy protection doesn’t mean liquidation for the company, and it would be able to continue its business operations. In this part of the series, we’ll look at analysts’ estimates for Seadrill’s 1Q17 earnings.
The chart above shows Seadrill’s (SDRL) consensus revenues and EBITDA[1. earnings before interest, tax, depreciation, and amortization] estimates. According to data compiled by Reuters, analysts expect SDRL to deliver revenues of $548 million, a decline of 38% year-over-year. This estimate is also below its 4Q16 revenues of $667 million.
The estimated decline in Seadrill’s revenues is mainly due to a lack of demand for offshore drilling activity and the company’s comparatively weak backlog. In this industry, the downturn doesn’t just affect Seadrill—it also affects other offshore drilling (IYE) companies such as Ocean Rig (ORIG), Transocean (RIG), Pacific Drilling (PACD), and Rowan Companies (RDC).
Analysts expect Seadrill’s 2Q17 revenues to reach $547 million. Based on its existing contracts, Seadrill’s backlog for 2017 is $1.7 billion.
Analysts estimate Seadrill’s fiscal 2017 revenues to reach $2.1 billion. Despite the weak industry scenario characterized by low day rates and low or no rig contracting activity, analysts have predicted new contracts for Seadrill. In our view, there’s a strong possibility that analysts could revise their revenue estimates downward in the absence of new contracts.
Wall Street analysts expect Seadrill’s (SDRL) 1Q17 EBITDA to be $272 million, down from $528 million in 1Q16 and $354 million in 4Q16. Seadrill’s EBITDA estimate for fiscal 2017 is $937 million.