Offshore contract driller SeaDrill Limited SDRL is set to release second-quarter 2015 results on Aug 27.
The company beat the Zacks Consensus Estimate in three of the past four quarters and posted a positive average earnings surprise of 14.17%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that SeaDrill is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: SeaDrill currently has an Earnings ESP of +1.70%. This is because the Most Accurate estimate of 60 cents stands above the Zacks Consensus Estimate of 59 cents.
Zacks Rank: SeaDrill carries a Zacks Rank #3 (Hold) which, when combined with +1.70% ESP, makes us confident about a positive earnings beat.
Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-Than-Expected Earnings?
SeaDrill holds a robust portfolio of modern fleet with new equipment that command higher rates compared with its peers. The company has a strong backlog and remains well contracted through 2015, which may provide some stability in these troubled times.
Moreover, crude recovered slightly during the second quarter in comparison to the prior quarter. This is evident from the fact that oil touched the $60 per barrel mark during the April to June quarter of 2015 in comparison to the January to March quarter when the commodity traded mostly below $50 per barrel.
Since the demand for drilling fleet is positively correlated with oil prices, we expect the company to beat our estimates during second-quarter 2015 as we saw other drilling players like Transocean Ltd. RIG, Diamond Offshore Drilling Inc. DO and Ocean Rig UDW Inc. ORIG surpassing their respective Zacks Consensus Estimate.
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