Diamond Offshore Drilling Inc. Stock Downgraded (DO)
NEW YORK (
)
(NYSE:
) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share.
Highlights from the ratings report include:
- The current debt-to-equity ratio, 0.35, is low and is below the industry average, implying that there has been successful management of debt levels. Along with this, the company maintains a quick ratio of 4.21, which clearly demonstrates the ability to cover short-term cash needs.
- 43.80% is the gross profit margin for DIAMOND OFFSHRE DRILLING INC which we consider to be strong. Regardless of DO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DO's net profit margin of 25.20% significantly outperformed against the industry.
- DO, with its decline in revenue, underperformed when compared the industry average of 15.6%. Since the same quarter one year prior, revenues fell by 11.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, DO has underperformed the S&P 500 Index, declining 12.54% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Energy Equipment & Services industry. The net income has decreased by 22.0% when compared to the same quarter one year ago, dropping from $241.69 million to $188.49 million.
Diamond Offshore Drilling, Inc., together with its subsidiaries, operates as an offshore oil and gas drilling contractor worldwide. The company has a P/E ratio of 8.6, above the average energy industry P/E ratio of 8.4 and below the S&P 500 P/E ratio of 17.7. Shares are up 14.5% year to date as of the close of trading on Friday.
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