Rowan Beats Consensus (RDC) (RIG)

Total revenue expanded more than 57% year over year to $351.0 million in the reported quarter, and beat our expectation of $343.0 million. The outperformance was mainly attributable to increased activity from fleet additions and higher utilization of existing rigs between periods.

Dayrates and Utilization

The company’s Gulf of Mexico rigs experienced a dayrate of $119,100 (versus $118,700 in the year-ago quarter), Middle East rigs saw a dayrate of $130,800 (versus $123,600 a year ago) and North Sea rigs showed $234,500 (versus $195,300 in the year-ago quarter). The overall dayrate of all offshore rigs was $154,000 (versus $133,300 in the second-quarter 2011). Average utilization of the company’s rig improved to 79% from 70% in the year-earlier quarter.

Financials

As of June 30, 2012, cash balance was $665.6 million and long-term debt (including current maturities) was $1,491.7 million. Debt-to-capitalization ratio was 25.1% versus 20.4% in the prior quarter.

To Conclude

Houston, Texas-based Rowan Companies Inc. is a provider of international and domestic contract drilling and aviation services. During the quarter, the company experienced strong demand as well as solid dayrates for high-specification jackups in most of the markets. Rowan also contracted the first of its three newbuild ultra-deepwater drillships — Rowan Renaissance.

As part of Rowan’s efforts to diversify its markets geographically, the company has also taken the decision to move its official headquarters to the U.K., since most of its business comes from outside the U.S. Rowan is the seventh largest offshore drilling contractor in the world and the fifth largest jackup rig operator. Transocean Ltd. (RIG) is the world's largest offshore drilling contractor.

Considering the volatile macro backdrop along with operational hindrances that could put pressure on the company’s performance in the upcoming quarters, we see restricted upside potential for Rowan’s shares and expect the company to be on par with the industry. Therefore, we maintain our long-term Neutral rating.

Rowan also holds a Zacks #3 Rank that translates to a short-term Hold rating.