DryShips' Rig Business Wins Cheers

Updated to clarify that shipping analyst Urs Dur works for Lazard Capital Markets, not the separate, though affiliated, Lazard investment bank.

NEW YORK (TheStreet) -- DryShips'(DRYS) push into the deepwater oil-drilling business has evidently begun to excite investors once again.

Lazard Capital Markets upgraded the company's stock to buy from hold Tuesday largely based on the financial promise held by the vessels DryShips owns and has on order -- vessels specially equipped to explore for oil in extremely deep waters.

"DryShips will likely be considered more as a drillship owner in the coming year, not just a dry-bulk shipper," Lazard Capital's marine-transport analyst, Urs Dur, wrote in his research note. He lifted his 12-month price target on DryShips stock to $11.

Investors responded by bidding up shares of the Athens-based company by 9% in Tuesday. The stock was changing hands recently at $7.38, up 61 cents, on heavy volume of 22 million shares. Turnover in the Nasdaq-listed name averages 37.5 million shares a day.

Dur wasn't the first to hike his rating on the company's stock based on its diversification into the exploratory drilling business. Greg Lewis, of Credit Suisse, did the same back in July, when he wrote, "We believe [DryShips'] rig assets are being ignored by investors."

DryShips began its move into drilling in 2007, when it took a stake in a Norwegian operator of two of these extremely sophisticated, and therefore complex, vessels. DryShips subsequently bought the whole company, called Ocean Rig, and then placed orders for four more such ships, due for delivery throughout 2011.

At first, the company was criticized for moving into a complicated industry about which it knew little, and for wrecking the pure-play dry-bulk stock that many investors were then seeking. But when the global financial system melted down, and the dry-bulk industry with it, asset values for drillships held up much better than their ore-hauling cousins, causing many to rethink DryShips' strategy.