Trade-Ideas: Seadrill Partners (SDLP) Is Today's Strong On High Relative Volume Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Seadrill Partners ( SDLP) as a strong on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Seadrill Partners as such a stock due to the following factors:

  • SDLP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $6.3 million.
  • SDLP has traded 56,733 shares today.
  • SDLP is trading at 3.67 times the normal volume for the stock at this time of day.
  • SDLP is trading at a new high 3.23% above yesterday's close.

'Strong on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as M&A events, material stock news, analyst upgrades, insider buying, buying from 'superinvestors,' or that hedge funds and momentum traders are piling into a stock ahead of a catalyst. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on SDLP:

Seadrill Partners LLC owns, operates, and acquires offshore drilling units. The company operates semi-submersible drilling rigs, tender rings, and drill ships. It primarily serves various oil and gas companies. The company was founded in 2012 and is headquartered in London, the United Kingdom. The stock currently has a dividend yield of 15.4%. SDLP has a PE ratio of 6.8. Currently there are 4 analysts that rate Seadrill Partners a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for Seadrill Partners has been 441,100 shares per day over the past 30 days. Seadrill has a market cap of $1.1 billion and is part of the basic materials sector and energy industry. Shares are down 9.4% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Seadrill Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, weak operating cash flow, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • The debt-to-equity ratio is very high at 3.93 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, SDLP maintains a poor quick ratio of 0.88, which illustrates the inability to avoid short-term cash problems.
  • Net operating cash flow has decreased to $169.50 million or 45.39% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Energy Equipment & Services industry and the overall market on the basis of return on equity, SEADRILL PARTNERS LLC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Looking at the price performance of SDLP's shares over the past 12 months, there is not much good news to report: the stock is down 56.76%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier 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.
  • SEADRILL PARTNERS LLC's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, SEADRILL PARTNERS LLC reported lower earnings of $1.76 versus $1.86 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus $1.76).

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