NEW YORK (TheStreet) -- Diamond Offshore Drilling (DO - Get Report) shares are declining -0.95% to $46 on Monday after being downgraded to "sell" from "hold" by analysts at Deutsche Bank (DB), who also cut its price target nearly in half to $34 from $60.
The downgraded outlook is a result of analysts expectations of an industry wide oil rig fleet market recapitalization that could hurt companies' bottom lines.
Diamond Offshore Drilling reported a 52% decrease in its quarterly profit this quarter from the year ago period.
TheStreet Ratings team rates DIAMOND OFFSHRE DRILLING INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate DIAMOND OFFSHRE DRILLING INC (DO) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."
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Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite currently having a low debt-to-equity ratio of 0.55, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that DO's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.34 is high and demonstrates strong liquidity.
- 36.78% is the gross profit margin for DIAMOND OFFSHRE DRILLING INC which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, DO's net profit margin of 12.95% compares favorably to the industry average.
- The revenue fell significantly faster than the industry average of 21.4%. Since the same quarter one year prior, revenues slightly dropped by 8.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Energy Equipment & Services industry and the overall market, DIAMOND OFFSHRE DRILLING INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Net operating cash flow has significantly decreased to $64.31 million or 73.64% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: DO Ratings Report