NEW YORK (TheStreet) -- Analysts hate Seadrill (SDRL - Get Report). It has received five downgrades over the last two months. But this does not mean you should sell this high-yielding stock, especially after its late May quarterly results and new deals signed in May and this month.
Seadrill's utilization rates have fallen and it is having a difficult time finding a new contract for one of its newly built drillship. That is because the company is operating in a weak market which is not showing any signs of improvements.
Seadrill's shares have fallen by more than 8% this year and are closed Wednesday at $37.74.
However, the Seadrill's utilization rate is better than most of its peers. More than 70% of its floaters are contracted out through 2015. The company has been growing its backlog by signing multi-year contracts and has forecast improvements in utilization rates.
Moreover, its recent deal with Rosneft can lead towards improvements in backlog and utilization rates.
Seadrill has grown its cash reserves to nearly $2 billion following drop down of its assets to its master limited partnership Seadrill Partners (SDLP). Seadrill is now transferring this cash to its shareholders by increasing its dividend by 2 cents to $1 per share, which translates into a juicy yield of 10.6%.
Last month Seadrill reported its strong first-quarter results. The company's revenue dropped by 3.5% year-over-year to $1.22 billion, but that was largely due to the deconsolidation of its results from those of Seadrill Partners. On a consolidated basis, Seadrill's revenue increased by more than 14% to $1.44 billion.
Seadrill's profits and its cash reserves have improved significantly due to the deconsolidation. The company's net operating income climbed 61.2% from the same quarter last year to $890 million while its cash reserves increased by threefold to $1.9 billion.
On the other hand, Seadrill's utilization rate for floaters fell to 88%, which is the first time in two years that its utilization rate has dropped below 90%.
Floaters are the backbone of Seadrill's operations. The company gets more than 70% of its contract revenues from them. Nearly 90% of the company's total revenue consist of contract revenue.