The firm believes that the worst in the oil price market has yet to pass as customers struggle to improve project economics in a "lower for longer" oil price environment, while the offshore rig market is heavily oversupplied, Barclays noted.
"While the stock will initially rally with higher oil prices and short covering, fewer rigs would be retired on the hope of demand improving, preventing the necessary catharsis this industry needs to become investable," analysts at Barclays added.
Diamond Offshore Drilling is engaged in offshore drilling and providing contract drilling services to the energy industry with 38 offshore drilling rigs.
Shares of Diamond Offshore Drilling are down 3.86% to $29.11 in afternoon trading Thursday.
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 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:
- The current debt-to-equity ratio, 0.54, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.84 is somewhat weak and could be cause for future problems.
- 40.21% 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 -41.23% significantly underperformed when compared to the industry average.
- 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, DIAMOND OFFSHRE DRILLING INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $160.57 million or 47.01% 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