Why Diamond Offshore Drilling (DO) Stock Is Lower On Wednesday

NEW YORK (TheStreet) -- Share of Diamond Offshore Drilling Inc. (DO) are lower by -1.92% to $48.60 on Wednesday after the company announced Statoil ASA (STO) terminated its drilling contract with the company eight-months ahead of schedule.

Statoil said it ended the drilling project on the semisubmersible Ocean Vanguard due to "technical aspects of the rig," Petro Global News reports.

Diamond Offshore said it is disputing Statoil's reasoning for terminating the contract and intends to defend its rights under the agreement.

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The contract provided for a day rate of $454,000 and was originally scheduled to end in late February of next year.

Separately, 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, good cash flow from operations 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."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite currently having a low debt-to-equity ratio of 0.54, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 2.67 is very high and demonstrates very strong liquidity.
  • Net operating cash flow has slightly increased to $303.02 million or 9.74% when compared to the same quarter last year. Despite an increase in cash flow, DIAMOND OFFSHRE DRILLING INC's cash flow growth rate is still lower than the industry average growth rate of 48.79%.
  • 44.54% 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 20.55% compares favorably to the industry average.
  • 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 17.1% when compared to the same quarter one year ago, dropping from $175.99 million to $145.81 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Energy Equipment & Services industry and the overall market, DIAMOND OFFSHRE DRILLING INC's return on equity is below that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: DO Ratings Report
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