NEW YORK (TheStreet) -- Shares of Diamond Offshore Drilling (DO - Get Report) were falling 7.9% to $30.96 after the offshore oil driller warned that it might lose a number of contracts.

Diamond Offshore announced that Petrobras (PBR) notified the company that it will terminate its drilling contract on the Ocean Baroness, and that the company doesn't plan on using the rig, in a 10-K filing. The offshore driller also said that PEMEX sent notification that it plans to exercise its right to cancel its Ocean Ambassador, Nugget, Summit, and Lexington drilling contracts.

The company said it is in talks with both companies concerning the rigs.

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Dana Petroleum also contacted Diamond Offshore about canceling its Ocean Nomad contact, but the company said it does not believe Dana had a "valid basis for terminating the contract and we intend to defend our rights under the contract."

Following the announcement of the impending cancellations analyst firm Cowen lowered its price target for Diamond Offshore to $26 from $28 a share. The analyst firm said the potential terminations are not a surprise given the current environment and oil prices, but that the magnitude of them is serious.

Shares of other offshore drillers such as Transocean (RIG) , Seadrill (SDRL) , and Noble (NE) were also falling following Diamond Offshore's announcement.

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 increase in net income, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share."

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

  • The net income growth from the same quarter one year ago has significantly exceeded that of the Energy Equipment & Services industry average, but is less than that of the S&P 500. The net income increased by 6.7% when compared to the same quarter one year prior, going from $92.62 million to $98.84 million.
  • 46.79% is the gross profit margin for DIAMOND OFFSHRE DRILLING INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 14.63% significantly outperformed against the industry average.
  • DO, with its decline in revenue, underperformed when compared the industry average of 12.4%. Since the same quarter one year prior, revenues slightly dropped by 3.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • DO's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 27.93%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • 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. 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.
  • You can view the full analysis from the report here: DO Ratings Report